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IMF Tax Worry

Prime Minister reveals fresh concerns about island’s tax system

The International Monetary Fund (IMF) is questioning the large number of tax allowances and exemptions Government is giving to Barbadians, but Prime Minister Freundel Stuart says it’s too early to say whether more cuts in allowances are on the horizon.

The concern is contained in a report that experts from the Washington-based institution compiled after conDucting a Government-requested review of Barbados’ tax system.

Speaking with the Barbadian media at the Sandals Grande Antigua Resort and Spa where he attended the 35th Heads of Government Conference, which ended today, Stuart said he was only now studying the experts’ recommendations but “a very cursory reading of the report shows that there are quite a few things that we have to do with our tax system at the moment to make it more efficient.”

“In fact one of the questions Barbados has been asked is why are you imposing taxes on people if you’re going to take the tax with one hand and give them back with the other in all of these allowances,” Stuart said.

“If you’re imposing a tax, impose the tax and get the revenue to do the things you want but if you’re going to impose the tax and then [give] this allowance, and that exemption and that zero rating and so on, you are defeating the purpose of imposing the tax in the first place.”

Stuart pointed out that after the 1991 economic challenges facing Barbados, then prime minister Erskine Sandiford [now Sir Lloyd] stripped the tax system of the raft of allowances that made the tax effort “a waste of time.”

However, he said, bad practices had crept back in.

Now, Stuart said, some of the same problems solved over 20 years ago now have to be solved again.

When pressed about whether this meant Barbadians could expect fewer tax exemptions, the prime minister said no decisions have been made.

“The Cabinet has not yet even discussed the report. All I have said to you is that the report has highlighted our un-wisdom in playing taxation – in saying that we are imposing a tax because the whole purpose of imposing the tax is to get revenue and then undermining our capacity to get the revenue by giving a whole set of allowances. That’s what the report is saying. Than that I have said no more,” the Prime Minister said.

Stuart also did not disclose what the IMF had recommended to deal with that problem or its other suggestions for improving the efficiency of the tax system.

Already, the Governor of the Central Bank Dr Delisle Worrell has made his recommendation for one of the country’s major taxes – the Value Added Tax (VAT). He has suggested that VAT is inappropriate for Barbados and a simple sales tax should replace it.


2 Responses to IMF Tax Worry

  1. Jackie Alleyne July 5, 2014 at 8:18 am

    It may be interesting to know WHO is receiving these exemptions, we know the Hotel Industry receives some….

  2. Colin July 6, 2014 at 9:47 am

    Interesting comments. There is the revenue raising side of tax policy to be considered as well as the use of taxation to achieve policy outcomes to shift an economy towards a particular direction. Since 2010 the emphasis has been on raising revenue at the individual level to the detriment of the impact on aggregate demand it the impact it has had on slowing down the economy. Hence in 2010 if the objective was to achieve bringing neutrality to the tax system as the IMF is suggesting, then the elimination of the allowances would have been immediately offset by a reduction in the tax rates and extending the tax bands. Absent this approach the elimination of allowance and deductions ican only be seen as tax increases.


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