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Mapp Sends Tax Increases Back to Legislature

Gov. Kenneth Mapp has submitted to the Legislature a package of new taxes and fees aimed at starting to close persistent, large structural budget deficits, Government House announced.

These include measures he proposed in December, for tobacco and alcohol tax increases and fees on time shares, and are part of a five-year plan aimed at reassuring creditors as well as improving the territory’s bottom line.

The Senate voted down the tax increases in December, with several senators saying they wanted to hear from the business community before acting. (See Related Links below.) Then, on Jan 12, the territory tried to sell bonds to balance the current year’s budget, but had to abort the offering due to a lack of sufficient interest from investors. A few days later, the Fitch rating agency downgraded the territory’s bonds to ""BB-", indicating they are "speculative." Fitch referenced the failure to enact the tax increases in its explanation and said there was concern the territory would not enact a credible plan to address its ongoing structural deficits.

Administration officials have variously said the territory has an ongoing structural deficit of between $130 million and $170 million per year. Among many factors affecting that amount, the government instituted pay raises this year, costing $30 million annually.

Mapp’s proposal would increase tax on foreign and domestic beer from the current $2.08 and $1.55 per case, respectively, to $14.08 and $11.55 per case. It would add $15 per carton to the current 45 percent tax on cigarettes. Sodas would see an increase of one cent per fluid ounce, and for wine and liquor, up from $6 per case to 10 percent of the value. The administration projects those excise tax increases will generate $27 million per year.

He is also proposing a fee on time shares of $30 per day of occupancy, which the administration projects to generate $23 million per year. 

In a statement, Mapp said the bill is “designed to identify concrete proposals to close the gap in the continuing structural deficits, to curtail continuous borrowing to meet operating expenditures, and to enhance our ability to pay income tax refunds timely.”

It targets non-essential commodities that, he says, will not result in a cost of living increases in essential areas.

Noting that rating agencies have continued to downgrade Virgin Islands Government bonds despite what he said were many encouraging signs in the local economy, Mapp said in his letter of submittal to the Senate President that he “anticipate(s) potential further deterioration in credit quality if the USVI does not take definitive action to address its current fiscal position.” 

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