The government was right to proceed with its longstanding promise to raise import duties on alcohol and tobacco, but leaders need to get out of the habit of implementing such measures with minimal public discussion and insufficient warning.
Given the fragility of the Virgin Islands’ two economic pillars — financial services and tourism — the territory needs to do all it can to shore up public revenue from other sources.
So-called “sin taxes” are a good way to do this, as various reviews have opined in recent years.
Alcohol and tobacco, after all, are luxuries, not necessities. Moreover, both products can cause serious health problems, bringing costs that society often has to bear.
For these reasons, both alcohol and tobacco are often taxed heavily abroad, and even under the VI’s new regime the duties here will be low in comparison with many other developed countries around the world.
In general, the new system seems fair. Under the former regime, which levied duty on the basis of quantity rather than value, a $100 bottle of wine would be taxed at the same rate as a $6 bottle of the same size — at $1.20 per imperial gallon, which comes to about 23 cents for the standard 750-millilitre size. Under the new system, by contrast, both bottles will be taxed at 25 percent of their value — at $1.50 and $25, respectively.
Even though the tobacco-tax hike is generally more extreme — rates are to increase from 25 cents per half-pound to 50 percent of a product’s value — it too seems reasonable, considering the dangers that smoking poses to personal and collective health.
Ultimately, the tax hike is expected to triple the $800,000 that government currently earns from alcohol and tobacco import duties. Though this is a small percentage of government’s total revenue of more than $300 million, it is a step in the right direction.
Communication, however, could have been better. This is not to say that anyone should be surprised by the tax hike itself, which government has been promising for years.
But the rates and the details of the new system, which took effect yesterday, were not disclosed until last month.
This information was late in coming, particularly given that government didn’t hold public meetings to provide updates or solicit input.
In the future, all new revenue-generating measures should be preceded by community discussion and enough advance notice to allow businesses and other stakeholders to plan ahead.
Moreover, any new taxes should be accompanied by complementary measures designed to ensure that the public’s money is spent wisely.
Government has a long way to go in this regard, and now is the time to start a dialogue.
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