Combined rate cuts in diesel fuel imported by Caribbean Utilities Company will cost the Cayman Islands government nearly $17 million in tax revenue over an 18-month period.
In the meantime, it is expected to save residential fuel consumers about 8.6 percent on their monthly bills, depending on fuel prices at the time.
As of January 2016, the Progressives-led government’s plan is to cut the 50 cents per gallon tax rate on diesel fuel imported by CUC to 25 cents per gallon. That is on top of a 25 cent per gallon decrease that was implemented in January this year.
The rate cut, Premier Alden McLaughlin said, should further reduce consumers’ electricity bills and will have reduced the import rate on diesel imported by CUC from 75 cents per gallon in 2014 to 25 cents per gallon in 2016.
However, the reduction will also cost the Cayman Islands government significant revenue.
Finance Minister Marco Archer said Friday that the initial rate cut, between January and June 2015 of the government budget year, would cost government about $4.2 million.
Extending that rate cut into July-December 2015 would add another $4.2 million in lost tax revenue for a total loss of $8.4 million during calendar year 2015.
Adding the new rate cut in January 2016 and extending it through June 2016 would cost government a further $8.4 million compared to the initial duty rate, which, added to the earlier $8.4 million loss, totals $16.8 million in reduced revenue to government coffers since January 2015.
Going forward, the annual loss to government will be $16.8 million per year, comparing the 75 cents per gallon rate to the new 25 cents per gallon rate.
The average CUC residential customer would see a total 4.3 percent reduction on monthly power bills, depending on the price of fuel, Minister Archer said, from the initial duty rate reduction from 75 cents to 50 cents per gallon.
If that rate reduction goes from 75 cents per gallon to 25 cents per gallon, customers should see around an 8.6 percent reduction on monthly bills.
A customer whose power bill is $300 per month would save about $25 per month when the January 2016 rate cut takes effect. A customer who spends $600 per month would save about $51 per month.