TT Chamber analyst wary about forex shortage solutions

WHILE Finance Minister Colm Imbert “pulled some levers” to address revenue shortfalls, Colin Ramsey, partner at Ernst & Young, says persistent issues like heavy expenditure on subsidies, transfers and a bloated public sector, continue to drive the country’s annual budget deficits.

Ramsey shared his analysis at the TT Chamber of Industry and Commerce’s annual post-budget discussion at Hyatt Port of Spain, on October 1.

He expressed concern that TT revenue has failed to match annual expenditure every year for the last decade, barring 2022 when geopolitical forces impacted oil and gas prices, benefiting the country.

About $60 billion is spent annually on average, half of which is appropriated to recurring transfers and subsidies.

"We also find ourselves in a position where the government continues to be the major employer of citizens in the country."

In his post-budget analysis, Ramey, who serves on the chamber’s budget recommendations committee, pointed at systemic problems, such as declining oil and gas production and limited access to foreign exchange, particularly for small and medium-sized enterprises (SMEs).

"What has the minister done (to) address this revenue shortfall? (He) pulled levers to generate additional revenue."

Imbert announced the oil price assumption for 2025 would be US$77.80 per barrel, compared with US$85 per barrel in 2024.

The budget was also predicated on a natural gas price assumption of US$3.59 per mmbtu, compared with US$5 per mmbtu in 2024.

The assumed fiscal deficit of $5.517 billion or 2.9 per cent of TT’s GDP was within the international benchmark, Ramsey found, and the announcements were "positive overall in terms of where we are."

Recent diminished gas production in TT limited availability to the petrochemical sector, which may not improve until or around 2027, when the minister predicted a turnaround.

"(While) oil and gas sector continue to play such an important role, our forex reserves have also been declining over the period," he said, notwithstanding gross official reserves of US$5.5 billion or 7.7 months import cover, "which is quite healthy and relative to our neighbours (and) puts us in a very good position."

Yet forex supply remains a national issue.

While Imbert signalled the government’s intention to begin collecting taxes from oil and gas companies in US dollars, Ramsey said he was uncertain if that would alleviate the shortage.

Some of the more established businesses he admitted would have built relationships with their banks and thus better access to forex, leaving the SMEs limited to credit cards for purchases in US currency, who also "find it difficult with limits continuously dropping because of this foreign exchange issue."

Eximbank’s forex facilities for SMEs were addressed in the previous budget and brought up again by Imbert, who promoted its forex windows to help businesses access foreign exchange for critical purposes.

Eximbank’s products are intended to support export growth in the manufacturing sector by allowing manufacturers who export products access forex to purchase raw materials and equipment necessary for their operations.

The essentials forex window allocates forex to importers of key goods such as food and medicines, to ensure the availability of crucial goods while global supply chain issues are ongoing.

Ramsey lauded the Special Economic Zones Act, which was proclaimed in July, saying it could attract much-needed foreign direct investment.

"It could create a very enabling environment for companies to set up business and benefit from pretty decent tax breaks, including a reduced rate of corporation tax, customs duties and VAT waivers."

The Special Economic Zones Act replaces the Fees Zones Act, with provisions until December 31, which he says is important because it would help TT’s case for its removal among the non-co-operative jurisdictions published by the EU, which impacts trade with European partners.

He suggested the repeals of the Norway-TT and Denmark-TT treaties since 2023 are not positive signs.

"You know one thing Trinidad has always been proud of is we have a fairly strong and healthy treaty network.

"These are issues that we need to deal with, so this special economic zones legislation is key in getting us to where we need to be."

Ramsey also addressed property tax, saying he was not against the imposition but was sceptical about the value citizens would get in return.

"We know the money is going to be allocated to corporations for their use in providing goods and services to communities, paving of roads, collection of garbage, but until we see some real improvement on that particular area, then, you know, it is left to be seen whether this is going to really make a meaningful difference in the lives of citizens, right?"

The chamber believes the government should reduce the stamp duty and the transfer of properties, he said, starting with residential and moving towards commercial, and others, in light of the re-imposition of property tax.

Ramsey spoke on the TT Revenue Authority’s impending operation, saying, "It is left to be seen whether this is a panacea for all our tax problems.

"But what we do know is that there would be synergistic benefits, having the existing Board of Inland Revenue and Customs and Excise work together under one uniform authority.

"It has been estimated that TT is losing annually roughly $10 billion as a result of non-collection of taxes, so it is envisioned that this particular initiative would help plug that tax gap and would presumably help in a more efficient delivery of service to taxpayers."

Hopefully, long lines to pay property tax, are of the past, he said, "or the speed at which we get things like tax clearances or VAT funds which continue to plague the business community."

He also addressed transfer pricing (the manipulation of prices between related parties for goods and services), saying legislation to treat with it “is definitely something that could be looked at.”

Ramsey noted, however, that anti-avoidance law already exists, giving the tax authorities the power to disregard transactions they consider artificial or fictitious.

Imbert announced the government's intention to introduce transfer pricing legislation in the budget, saying it would provide clearer guidelines and regulations.

He also announced the introduction of VAT bonds as a significant measure to address the long-standing issue of delayed VAT refunds for businesses.

Imbert noted that VAT bonds were previously issued in 2020 and 2023, with interest rates around three per cent to 3.15 per cent per annum, respectively.

Bonds allow businesses to receive immediate liquidity rather than waiting for their VAT refunds to be processed, which can often take months.

"I think this is a relief for many persons in this room who owed VAT refunds for a long time," said Ramsey. "We know that the perennial issue of receiving timely VAT refunds continues to plague our business community."

However, Ramsey noted that under the VAT Act, a party owed a VAT refund for more than six months could apply for interest to be paid one per cent per month.

"So the question must be asked: Am I foregoing my right to 12 per cent per annum interest on my VAT funds to benefit from this VAT bond, simply because of the pressures that are being placed on me to be able to get my money on a timely basis?"

Ramsey also addressed the minimum wage increase for public sector workers from $20.50 to $22.50 per hour, which he believes the government introduced to help alleviate inflationary pressures on low-income earners.

This increase, coupled with wage negotiations (if settled) should "bring earnings more in line with current market conditions."

He acknowledged the efforts made by the Ministry of Trade and Industry in promoting exports and establishing and enhancing trade relationships.

"We see the government signing an investment agreement with Ghana, being the gateway to West Africa and the largest country in the African continent that we do business with currently.

"We see a deepening of relationships with China, and India and TT recently signing a digital platform deal, which would allow for the imposition of electronic payments and improvement, I think, in the way we do business," he said, alluding to the recent announcement of a partnership between the Ministry of Digital Transformation and the National Payments Corporation of India (NPCI) to implement a real-time payments platform similar to the Unified Payments Interface (UPI) – India’s most popular digital payment system.

"I think one thing that everyone in this room could relate to is how far behind we are as it relates to (digital currency) and making payments online.

"This is something that we need to do a better job at in terms of moving forward."