The Government’s plan to impose VAT on digital services supplied by foreign companies will require a new registration and collection system, as the measure seeks to bring services provided by non-resident businesses into the tax net.
In its review of the 2027 budget, professional services firm EY said that under the existing VAT Act, digital services supplied by non-residents fall outside the tax net because “the supply is deemed to take place outside of T&T”.
The Government proposes to apply VAT to digital services supplied by non-resident providers to people in Trinidad and Tobago. EY said a simplified registration system would allow foreign suppliers to register, collect and remit VAT electronically.
“The specific categories of services to be covered have not yet been defined,” the firm said.
Based on similar legislation introduced or proposed elsewhere in the Caribbean, EY expects the measure to cover “digital content, subscriptions, cloud services, web hosting, online advertising and associated charges”.
EY said an alternative used in some jurisdictions was a reverse-charge mechanism, under which local recipients assess and pay VAT on imported services themselves.
“While the proposed regime places the compliance obligation on non-resident suppliers, consideration could also be given to a reverse-charge mechanism, particularly for business-to-business transactions,” the firm said.
The digital VAT proposal forms part of a wider revenue push that includes changes to the treatment of corporate tax losses, expenses incurred in earning exempt income and payments to non-residents for certain services.
The budget proposes limiting the use of carried-forward tax losses to 75 per cent of chargeable profits in any income year, a measure expected to generate $430 million.
The change would prevent companies from fully offsetting annual profits against losses accumulated in previous years, potentially increasing tax liabilities for recovering businesses, start-ups and capital-intensive industries.
A separate proposal to make expenses incurred in earning exempt income non-deductible is expected to generate $75 million.
EY said the measure appeared reasonable where expenses related directly and exclusively to exempt income, but warned that its application to CARICOM-source income could raise questions about the treatment of income under existing tax treaties.
The budget also proposes extending withholding tax to remote management, technical and other prescribed services provided by non-residents.
While the Finance Minister described the previous exclusion as a legislative loophole, EY said the exclusion was a defining feature of the country’s tax regime.
EY also warned that changing selected items from zero-rated to VAT-exempt status could increase costs for businesses. Although consumers might not be charged VAT directly on those supplies, businesses would generally lose the ability to recover VAT incurred on related expenses.
“Consumers may see no VAT charged, but suppliers generally lose the ability to recover VAT. That becomes a business cost and may eventually find its way into prices,” EY said.
The firm also identified outstanding questions about the VAT refund backlog, the operational arrangements for the proposed US-dollar savings bonds, the finalisation of transfer pricing legislation and compliance requirements for mandatory electronic filing through GENTAX.
The budget projects a fiscal deficit of $3.639 billion, or 2.1 per cent of gross domestic product, for fiscal 2027, based on an assumed oil price of US$77 a barrel and a natural gas price of US$5 per million British thermal units.
However, real GDP contracted by 1.8 per cent year on year in the first quarter of 2026, while energy output fell by 2.8 per cent.
EY acknowledged increases in pensioners’ personal allowances and social grants but said the structural transformation promised in the Government’s 2025 manifesto remained a work in progress.
