Harmonisation of Fiscal Incentives

• Author: Duke Pollard
• Profession: Sitting senior judge of the Caribbean Court of Justice (CCJ), the highest appellate municipal court of the Caribbean Community (CARICOM)
• Pages: 171-183

The Harmonisation of Fiscal Incentives to Industry 171

9

THE HARMONISATION OF

FISCAL INCENTIVES TO INDUSTRY

Conceding that the Caribbean Community is a net importer of capital for the financing

of economic development projects, particularly in the industrial and manufacturing

sectors, it is easy to appreciate how interested Governments may be inveigled into

according foreign investors competitive investment incentives in a mad rush to the

bottom. In order to forestall such an eventuality, the original Treaty of Chaguaramas

provides in Article 40 for the harmonisation of fiscal incentives. In this connection, it

is somewhat curious to note that whereas the Agreement on the Harmonisation of Fiscal

Incentives, signed on June 5, 1973, prior to the signature of the original Treaty of

Chaguaramas, expressly provides for the harmonisation of incentives, Article 40 of the

said Treaty does not require incentives to be harmonised. The obligation assumed is

merely to ‘seek to harmonise such legislation and practices as directly affect fiscal

incentives to industry’ - Article 40 (1). Similarly, Member States were required to seek

to harmonise fiscal incentives to agriculture and tourism and to ‘study the possibility of

approximating income tax systems and rates with respect to companies and individuals’.

Given the foregoing, it does appear that the Treaty constituted a retreat from the position

adopted in the Agreement on the Harmonisation of Fiscal Incentives to Industry which

was intended to implement Article 23 of the CARIFTA Agreement.

Whereas the Agreement on Harmonisation of Fiscal Incentives implicitly recognises

in the preamble that such harmonisation is a requirement of the common market to be

established, the original Treaty of Chaguaramas appears to be hesitant to require outright

the harmonisation of incentives. In the result, the Agreement on the Harmonisation of

Fiscal Incentives to Industry never entered into force and no serious attempts were

made to harmonise incentives under the old dispensation established in 1973. However,

Article 69 of the Revised Treaty of Chaguaramas expressly requires Member States of

the Community to harmonise ‘national incentives to investments in the industrial,

agricultural and services sectors’. The Council for Finance and Planning has been

tasked with the establishment of appropriate regimes for the granting of incentives to

enterprises in the areas identified and in so doing must pay due consideration to the

peculiarities of industries.

For the purpose of granting incentives to enterprises under the Agreement, certain

enterprises were designated approved enterprises which were classified into two groups

according to agreed criteria. For the purpose of the Agreement an ‘approved enterprise’

means an enterprise approved by the relevant authority of a Member State for the purpose