Residents and visitors in the Virgin Islands may soon see higher price tags on their favourite adult beverages, as government’s long-promised initiative to raise import taxes on alcohol and tobacco is set to take effect on June 1, according to an order from Premier Dr. Orlando Smith published in last Thursday’s Gazette.
Dr. Smith’s order changes the way alcohol and tobacco are taxed, switching from a duty on the volume (or in the case of tobacco, weight) of what’s imported to the value of what’s imported, according to Customs Commissioner Wade Smith.
For example, whereas whiskey is currently taxed at $3 per gallon, it will now be taxed at 25 percent of its value. This would mean that the tax on a $12 bottle of whiskey — which would probably be about a litre or less — would be the same as the tax currently charged for a full gallon.
Similarly, whereas tobacco is currently taxed at $0.50 per pound, as of June 1 it will be taxed at 50 percent of its value.
New rates
Caribbean Cellars General Manager Robert Knock said he expects the typical case of beer will increase by about $2 per case — beer is currently taxed at $1.10 per gallon, but will be taxed at the 25 percent rate starting June 1.
Duties on wine and liquor, which have a wider range of prices, will be more variable.
“As the rate is changing to a value base, then more expensive wines and liquors will have to go up by more than [$2],” Mr. Knock explained.
For example, while a $50 gallon of whiskey and a $100 gallon of whiskey are currently taxed at the same $3 rate per gallon, starting June 1 the former will be taxed at $12.50 and the latter at $25.
The Caribbean Cellars general manager added that the increased rates will be felt by customers.
“It is a shame that with all the attention on cost of living here that the government has decided to increase what is essentially a tax on consumers, as the increased duties will be passed straight on in pricing,” he said.
Gov’t revenue
The changes are expected to triple government revenue from alcohol and tobacco duty.
According to government’s recently published Medium Term Fiscal Plan 2016-18, alcohol and tobacco tax revenue is expected to triple from $800,000 this year to more than $2.4 million in 2018.
However, given that the change will make duty rates in the VI higher than those in many nearby jurisdictions, Mr. Knock said he is worried that the increase will create black markets in alcohol and tobacco products.
“We are very concerned that having such high duty rates will lead to increased smuggling of liquor and tobacco in the future,” he said. “It is obviously a big change for the BVI from being a very low-duty area to a comparatively high duty area.”
Government had been discussing raising taxes on alcohol and tobacco for years — its MTFP 2014-16 stated that rates on those products would double — but nothing concrete was presented to the public until last Thursday.
Both Mr. Knock and TICO BVI owner Adam Morrell said government did not notify them about the details of the impending changes.
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