A review of the payroll tax system more than three years in the making will take some additional time, Premier Ralph O’Neal said during a House of Assembly meeting Tuesday.
Mr. O’Neal blamed “coordination challenges” for delaying the review, which is needed to correct “several peculiarities” in the tax system, he said.
The premier, in answering a question from Opposition Leader Dr. Orlando Smith, said that the Payroll Tax Committee made some recommendations, which are being evaluated and incorporated into amendments to be presented to Cabinet for consideration. He did not specify when that would occur, but said that officials are “diligently working” on the amended act and will probably lay the report on the table at the next sitting of the HOA.
As an example of one of the recommendations, the premier said that some people are asking to be allowed to make their payroll tax payments in a single installment.
“If that were done it would be most welcome, but that would need another change in the law,” he said.
Current revenues
Under the existing system, the tax will bring in an estimated $37.5 million in government revenues this year, up from an estimated $34 million last year, according to the 2011 budget.
In June 2007 while campaigning in Virgin Gorda, Mr. O’ Neal criticised the then-National Democratic Party-led government’s adoption of the payroll tax, a measure that he said his Virgin Islands Party government had previously rejected. Five months later, he announced the review and described plans to “remove any inequities from the law.” He did not elaborate on the “inequities” or how a review of the current law might affect employers and employees in the territory.
The 10-member Payroll Tax Committee was formed in 2008. It hosted a series of public meetings to gather input about the law, discussions Ian Smith, the committee’s chairman, called “fruitful,” according to Government Information Services. The committee was due to submit its recommendations by July 2009, but was granted a 60-day extension.
The payroll tax was introduced in 2005 by the NDP government in response to the United Kingdom’s directive that income tax be abolished. The potentially unpopular directive had languished for many years before being implemented.
Payroll tax is an employer’s tax charged “on actual remuneration paid, given or assessed by any employer or self-employed person,” according to a payroll tax guide published by the Inland Revenue Department.
Tax rate classes
The tax rates are divided into two classes. In the first, for smaller businesses, employee and employer together pay 10 percent (eight for employees; two for employers) after employees earn their first $10,000, according to the guide. In order to meet the criteria for this class, a company must have fewer than eight employees, a payroll of $150,000 or less, and a gross revenue under $200,000.
Larger companies, considered class two, pay “a rate of 14 percent of the tax base,” (eight for employees; six for employers), the guide says. Exceptions include ecclesiastical or charitable organisations.