In December 2013, the government released its first Medium Term Fiscal Plan, which promised nine new initiatives designed to grow its annual revenue by $20 million by the end of 2016.

Three years later, most of those measures have not been implemented, and the ones that are in place are expected to bring in less than $2 million this year.

Medium-term projections miss the mark By CONOR KING DEVITT Government’s 2016-2018 Medium-Term Fiscal Plan, which was released in May, described plans for 11 new revenue-generating initiatives. Nine of them were projected to earn revenue this year, bringing government more than $19 million in additional funds. However, the initiatives have fallen far short: Taken together, they now are expected to earn less than $2 million by the end of the year, according to updated projections provided this week by Financial Secretary Neil Smith.  The table below contrasts the MTFP’s predictions with the current expectations for 2016. 1. Reverse the charging of import duties on “free-on-board” rather than “cost-insurance-and-freight” value. 2016-2018 MTFP projection: $2.5 million Updated projection: $1.875 million 2. Revise the Customs tariff on alcohol and tobacco to reflect the value of products imported. MTFP projection: $800,000 Updated projection: $23,831 3. Collect Passenger Tax charged at sea ports of entry. MTFP projection: $3.5 million Updated projection: $14,512 4. Collect $7 cruise passenger per visitor to the territory. MTFP projection: $5 million Updated projection: $0.00* 5.Introduce a Tourist Arrival/Environmental Levy. MTFP projection: $1.9 million Updated projection: $0.00 6.Change the current work permit structure so that fees will reflect improvements in efficiencies of the Labour Department and be more aligned with fees charged in other overseas territories. MTFP projection: $2.72 million Updated projection: $0.00 7. Review and revise the current marine fee structure by consolidating existing fees and creating a collection system that is fair and easy to monitor. MTFP projection: $1.6 million Updated projection: $0.00 8. Increase hotel accommodation tax from seven percent to ten percent. MTFP projection: $300,000 Updated projection: $0.00 9. Collect from the Telecommunication Regulatory Commission telecom royalties due to central government MTFP projection: $1 million. Updated projection: $0.00 Total MTFP 2016 projection: $19.32 million. Total updated projection: $1,913,343

Nevertheless, Financial Secretary Neil Smith said that several of the initiatives are in progress and likely will come soon.

The MTFP

The three-year MTFP was among several requirements included in the Protocols for Effective Financial Management, which the government signed with the United Kingdom in April 2012.

The plan is designed in large part to ensure that the government looks ahead to set specific targets and strategies, assess financial risk, and improve public sector transparency.

That effort includes implementing the promised revenue-generating measures to help diversify the territory’s revenue stream, maintain the recurrent surplus balance, build the reserve fund, and pay for capital projects.

But of the nine different initiatives projected to raise revenue this year, only three earned money for central government: a restructuring of import duties is projected to earn $1.875 million by the end of the year; a revised customs tariff on alcohol is projected to earn $23,831; and a passenger tax charged at sea ports of entry is projected to yield $14,512, according to figures provided by Financial Secretary Neil Smith.

A fourth measure came closer to fruition in October, when the House of Assembly unanimously approved an increase in the hotel accommodation tax from seven to ten percent.

However, the tax hike has yet to bring in revenue: Though it was projected to raise an additional $300,000 this year, it will likely not be implemented until early 2017, according to Mr. Smith.

Cruise passenger tax

Meanwhile, the initiative projected to be the most lucrative did not earn anything for central government: a $7 cruise passenger tax, which was slated to bring in $5 million.

However, this was not due to lack of implementation, according to Mr. Smith: The tax is being levied, but the BVI Ports Authority is retaining the revenue.

Another large projection, the tourist arrival levy, was slated to bring in $1.9 million, but has yet to be implemented. This initiative was mentioned in the last three MTFPs and the 2013 budget report.

The 2016-2018 MTFP also projected that changing the work permit fee structure would raise $2.72 million in revenue. The idea was that those who came to the territory for higher-paying jobs would pay higher fees for permits, on a sliding scale. It was also listed in the 2013 budget report and the last three MTFPs.

Though work permit fee restructuring did not happen again this year, Mr. Smith was hopeful it would begin to raise revenue in 2017. 

“We’ve done the analysis that we need to do on that, but I think there is some tweaking that Cabinet wants before we carry it to the House,” he said.

Another initiative — revising the marine fee structure — will come in the form of raising the rates for cruising permits, likely in 2017, according to Mr. Smith. The size of the fee increase has not been decided.

“The [marine] industry has some ideas, so we’re working with them,” Mr. Smith said.

The measure originally was projected to raise $1.6 million this year, according to the MTFP.

Overall fiscal outlook

Though the initiatives fell far short of projections, Mr. Smith does not believe they are necessarily make-or-break measures for the territory.

“I don’t think they change the picture that much, really,” he said. “What really will make a difference are things that change the behaviour of the economy itself. If you look at this, these here could only be seen as temporary measures.”

Substantially improving the territory’s revenue stream will require an examination of the bigger picture, according to Mr. Smith.

“If you want to make a fundamental difference in the ability of government to collect revenue, you need to actually shift the economics of the territory,” he said, adding, “You don’t build the revenue base of a government by taxing the citizens more. As a matter of fact, the exact opposite happens. These here could only be temporary measures, while they try to figure out what they’re going to do in the medium- and long-term.”

Revenue growing

Even though the new initiatives have perennially fallen short of projected earnings, government’s total revenue yield does not always tell the same story.

The 2014 budget document projected that total government revenue would be $302,306,000. However, this year’s MTFP indicated an actual revenue yield of $318.6 million in 2014, despite HOA’s failure to pass several of revenue-generating initiatives planned for that year. 

The MTFP attributes the increase mainly to the stamp duty and the sale of government properties.

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