IMF recommends raising VAT

The International Monetary Fund (IMF) has recommended Government make Value Added Tax (VAT) applicable to more items and raise the overall rate to the regional average.

“(The IMF’s Executive) Directors noted the need to further broaden the VAT base and consider raising the overall VAT rate to the regional average; finalise reforms of the fiscal regime for oil and gas; and significantly reduce the cost of transfers and subsidies through better targeting, while protecting vulnerable segments of the population.”

The advice was included in a statement issued yesterday (Monday) by the IMF’s Executive Board about its Article IV consultation with TT, which was concluded on October 23.

Although the IMF commended steps towards fiscal adjustment in the 2016 - 2017 and 2017 - 2018 budgets, it called for more adjustments, chief among them raising and widening the VAT net.

The introduction of property, excise and gaming taxes, royalties on natural gas production and elimination of fuel subsidies were all cited by the IMF as positive steps. “However, more adjustment is needed,” the IMF advised. Hence the aforementioned recommendations. The IMF also called for policy measures to deal with ingoing foreign exchange shortages, which it noted undermine investor confidence and country risk perceptions.

“Directors encouraged the authorities to swiftly reduce and eventually eliminate these imbalances and distortions, including through an exchange rate adjustment as part of a broader package of fiscal adjustment and structural reforms. Directors supported the pause in monetary tightening to strike a balance between supporting growth and managing capital flows.”

On a positive note, the IMF said TT’s financial system remains resilient and profitable despite the prolonged economic weakness, with the Central Bank being commended for its efforts towards adoption of Basel II standards by June 2018.

Meanwhile the authorities were encouraged to “pass long-awaited insurance legislation, address deficiencies in the AML/CFT framework, and comply with the Global Forum’s standards on tax transparency,” the IMF stated.