Sinckler hints at removal of tax exemptions in keeping with IMF report
With close to $2 billion in tax exemptions already identified, Minister of Finance Chris Sinckler has given his clearest indication to date of what will be a major focus of his upcoming budget presentation.
Pointing to a recent International Monetary Fund (IMF) report on taxation, Sinckler, who has already announced that there would be no major increases in taxes, said last night the Government’s priority would be to make “what we already have more effective”.
Speaking on state television, the Minister further pointed out that in the case of the country’s Value Added Tax (VAT) system, the base had been “eroded” by a number of zero-rates and exemptions.
In arriving at a budget position, he therefore said a number of questions needed to be considered, including, “do you want to move the rate from 17.5 [per cent] to 20 [per cent], or do you want to bring the rate back down to 15 [per cent], but broaden the base?”
With strong concern already being expressed nationally about the high level of domestic taxation, the Minister strongly hinted that Government was more likely to come down on the side of addressing its “grossly” inadequate revenue collection.
“So we have to look very carefully to determine whether or not we need to have more new taxes, which nobody wants, or to make what we already have more effective; and that is what we are considering right now,” Sinckler said in an appearance on the People’s Business programme last night.
In its final report entitled A Tax Reform Roadmap For Simplicity And Revenue Buoyancy, the Fiscal Affairs Department of the IMF has told the Freundel Stuart administration that while VAT was potentially an efficient tax with significant revenue yield, its base had been seriously eroded by extensive domestic zero-rating and exemptions, leading to significant distortions and widespread compliance problems.
“Excessive zero-rating has also exacerbated delays in the payment of VAT refunds,” the IMF report states.
“A comprehensive revision of the VAT law seems to be the best way to address these problems and to eliminated severe inconsistences in current practice and legislation,” it adds.
The Fund has therefore told the Government that a reformed VAT should have a single rate, should contain a few standard exemptions and should apply a registration turnover threshold of at least $200,000.
“At the current rate of 17.5 per cent, a reformed VAT with an expanded base could yield substantially more revenue which could permit an eventual reduction in the tax rate,” the report states.
Also under consideration by the Government is the IMF’s recommendations on personal income tax.
The IMF had stated that while the current system of levying individuals had many attractive features, it needed to be a fairer and more efficient revenue-raiser.
The Washington based financial institution, which is currently providing technical support to the Government, is therefore advising Sinckler to convert major allowances into tax credits at the lowest tax rate, and to tax capital gains on real property.
“The system of income taxation and VAT for small businesses should be simplified considerably, to reduce both compliance and administration costs,” it says in the 68-page report.