Tax compliance will be in focus in the 2018 fiscal package, possible foreshadowing a revamped Board of Inland Revenue or at least the start of a transition to the promised Revenue Authority.
On Friday, Minister in the Ministry of Finance Allyson West, a former tax partner at auditing giant PricewaterhouseCoopers, signaled the move to improve tax collection which has always been a challenge.
Government has persistently fallen short of projections from tax revenue. In the first six months of this fiscal year, government earned $13.2 billion in taxes— nine per cent lower than the same period the year before.
Thus far, government has seemed focused on stabilising the economy, attempting to buffer the population from the shock of drastically reduced revenue from the energy sector after prices began plummeting in 2014.
In its Economic Bulletin, released Wednesday, the Central Bank noted in the first ten months of financial year 2016/2017 (October 2016 to July 2016), lower non-energy and capital revenues meant government recorded a $12.1 billion deficit— more than twice the revised amount of $5.9 billion— and more than the $7.5 billion recorded in the same period of the previous year.
Non-energy revenue fell by 16.9 per cent to $21.8 billion from $26.2 billion, mainly because of lower tax revenue and capital revenue. The fall in non-energy revenues significantly outweighed the rise in energy receipts, so despite higher energy revenues (up by 17.5 percent), total revenue for the first ten months of the financial year declined to $28.5 billion-- $5.6 billion lower than the same period in the previous year.
Government has managed cut expenditure, though, to $40.6 billion in the ten months to July 2017.
Recurrent expenditure was down by $681.3 million, but wages increased by $613.1 million.
Interest payments also rose by $376.5 million, mainly due to higher repayments on domestic debt. The total government debt is estimated at 78 per cent of GDP, but comes down to 59.3 per cent when debt accrued for sterilization (Treasury Bonds) is excluded.
Foreign exchange availability remains of concern for not only the population, but international observers— the fourth biggest challenge to doing business in TT was foreign currency regulations.
The Central Bank estimates current foreign exchange reserves are US$8.71 billion, or 10.1 months of import cover—that’s down almost US$1.3 billion from the US$10 billion cited in the last budget speech, although the bank did acknowledge that these levels exceed the international standard. For all the demand, however, sales fell by nine per cent between January and August 2017 to US$3.4 billion.
Retail and distribution was the largest consumer of forex (31.6 per cent); followed by credit card settlements (27.8 per cent); and sales to manufacturers (11.4 per cent).
Finance Minister Colm Imbert has said repeatedly he does not want to interfere too much with the forex system in an effort to control inflation, which has remained relatively stable—almost deflationary—over the last few years.
Currently the exchange rate is a “controlled float”—a hybrid between a fixed rate, where the dollar is pegged at a fixed rate to another currency (in this case the US dollar), and a float, where the free market determines the value of a currency based on supply and demand. In a controlled float the dollar is allowed to fluctuate according to market forces, but Central Bank still injects (or removes) foreign currency into the financial system as needed to maintain a relatively stable rate.
The country's balance of payments is in a deficit of US$360 million, meaning currently more is imported than exported. On Wednesday, Prime Minister Dr Keith Rowley somewhat ominously stated, “If the demand for foreign exchange is not curtailed we will be forced to live with a rate determined by the market. This is where holding the strain and varying our taste come in.”
The country is currently in its eleventh quarter of economic decline. Today when the budget is read, the population will have to determine just how much strain it can hold.