Grenada’s Tax Incentive Reform

Grenada’s three-year-old government of Prime Minister Dr. Keith Mitchell is still to make good on two important fiscal commitments given to the International Monetary Fund (IMF) as part of the so-called self-imposed Structural Adjustment Programme.

The fund has identified these as a revamping of the Customs exemptions regime and removing the power of the Minister of Finance to remit tax in the Property Tax Act.

The IMF touched on the issue in a report that it put together in looking at Grenada’s fiscal and economic performance since SAP was introduced months after PM Mitchell returned to power in 2013.

As a public service, THE NEW TODAY reproduces the portion of the report that touches on Grenada’s tax incentive regime:

Grenada has made progress to reform its tax incentive regime to transition to an automatic and rule-based system.

The reform is encompassed in the 2014 Investment Act as well as a series of amendments to the individual tax acts made in June 2015.

The Investment Act aims to improve the business environment and enhance Grenada’s attractiveness as an investment destination with streamlined investment procedures, codified investment requirements and incentive criteria, and a transformed Grenada Industrial Development Corporation (GIDC) for investment facilitation.

Similarly, the legislative amendments removed discretion in the granting of tax incentives and codified specific incentives into Grenada’s tax laws.

The tax incentive reform has not been finalized.

The outstanding elements comprise:

(1) revamping the customs exemptions regime and

(2) removing the Minister’s power to remit tax in the Property Tax Act.
An important aspect of the customs exemptions reform is to amend Grenada’s List of Conditional Duty Exemptions (LCDE), by which considerable concessions have been granted on a discretionary basis. Grenada must coordinate the amendment of its LCDE with CARICOM, which has yet to occur.

Timely completion of the reforms will put in place a more efficient and transparent tax incentive system, safeguarding the revenue base and fiscal sustainability.

In this regard, the authorities have committed to putting into force the Investment Act and the new tax incentive regime – excluding elements relating to the LCDE – by end-December 2015 (a proposed structural benchmark under the program).

The new regime, once in effect, will provide for tax relief to priority sectors automatically, via:

Income Tax Act Amendments

Investment Allowance:

The Income Tax Act was amended to provide tax relief to investments in priority sectors, including agriculture, education, energy, health, housing, manufacturing, and tourism, providing a 100 percent automatic investment allowance for corporate income tax.

In addition, the depreciation allowance permits investors to recover qualifying investment costs before paying corporate income tax on investment profits.

Income Tax Deductions:

To stimulate growth in the agricultural sector, a 50 percent corporate income tax deduction was introduced for the cost of research and development.

Similarly, to promote skills development, a 50 percent corporate income tax deduction was introduced for training expenditures.

These new deductions supplement existing deductions for such expenditures under the Income Tax Act.

The period for carrying losses forward was also extended to six from three years to provide investors more time to recover losses.

Liberalized Depreciation:

To encourage business investment, depreciation rates were increased and allowances extended to all commercial buildings.

To encourage investment by small businesses, the depreciation system was liberalized to allow $100,000 of annual capital expenditure deductions.

 Property Transfer Tax Act Amendments:

The Property Transfer Tax Act was amended to reduce property transfer tax rates on land purchased for priority sector activities by a non-citizen.

To promote development of the tourism sector, the property transfer tax on the transfer of a villa or apartment in a tourism complex was also reduced.

Value-Added Taxation (VAT) Amendments:

To promote investment in priority sectors, a VAT suspension regime was established for goods imported to carry out a qualifying investment in a priority sector.

Under the regime, no VAT is payable upon import, but the taxpayer is required to list the import on the VAT return for the tax period in which the import occurs.

This saves the investor from having to pay VAT at the border and later claim an input credit.

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