For many years the Corporate Income Tax Rate in Grenada has been 30%. The Prime Minister Dr. The Right Hon. Keith Mitchell in his budget presentation for 2018 announced that by June 2018 with all things being equal that Government will lower the rate from 30% to 25%. What this simply means is that for one dollar $1.00 of profit earned in 2018 a business will be liable for tax at $0.25 instead of $0.30.
But is this a good strategy to encourage private sector investment? And can this translate into more economic activity?
According to most of the businesses within the Private Sector interviewed, they hailed this proposal by Government as being historic, encouraging and long in the making. While the economic forecast for growth of the economy is projected at 3.3% in 2018 some believe that the new measure can encourage many small businesses that are not currently registered and are a part of the informal economy can become registered as they view the new proposed tax rate to be a lot more business friendly. This measure of bringing the informal into the formal will essentially broaden the tax base and as such achieve revenue neutrality for the Government.
This new attitude will help in improving Grenada’s Doing Business Ranking going forward. Lower Corporate Income Tax Rate has the added benefit of encouraging greater investments by businesses; this can be in the form of investing in introducing new technologies and or for expansion purposes.
New Technologies
Introducing new technology can be the catalyst for Grenada’s improvement in productivity and hence our competitiveness. Many of our neighbouring Caribbean islands especially Barbados to our northeast and Trinidad to our south have bigger markets sizes and are ranked above Grenada in innovation and competitiveness. But with new technology, just like Singapore, Grenada now has a chance to outpace its neighbours in the development of its economy which can only be achieved through a technological revolution. A key message from the Prime Minister during his presentation was the fact that this new tax rate will be available for all sectors and not restricted to only tourism as an incentive.
We can therefore expect that businesses in the: hospitality sector, health and wellness, light manufacturing and agro-processing, retail, construction, agriculture, education among others can now take full advantage of this new initiative.
Interestingly, Ireland which has the lowest coperate tax rate in the entire European Union at a rate of 12.5% has attracted huge foreign direct investments from both European and American companies and has considered to have experience an “Irish Development miracle in the last decade” according to an Economix news article.
The bottom line is that the tax cuts should result in increased economic activity which should translate to increase employment. Both the private sector and the general population will be happy with such an outcome.
