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Caribbean territory Saint Vincent and the Grenadines has committed to undertake a more ambitious fiscal consolidation program in recent negotiations with the International Monetary Fund (IMF).
As a result of the reconstruction costs of flooding that occurred in December 2013, the IMF now expects that the territory's fiscal deficit will widen, resulting in a delay in reaching regional fiscal consolidation targets. The territory and the IMF have therefore discussed further reforms, which will be worth two percent of gross domestic product over the medium term so as to eventually turn the territory's deficit to a surplus.
The plans agreed include a review of tax exemptions (worth 0.5 percent of gross domestic product (GDP)), efforts to improve tax compliance rates (0.5 percent of GDP), a public sector wage review (0.4 percent of GDP), and a limit on transfers to state-owned companies (0.6 percent of GDP).
The IMF has recommended that the territory should in particular look to tackle non-compliance connected to the value-added tax and excise duties. This, alongside a return to pre-2010 corporate tax receipt levels, could generate a further fiscal adjustment worth 0.5 percent of GDP. Further, limiting discretionary exemptions of value-added tax and corporate tax could raise tax revenues by 0.5 percent of GDP each year by 2019.
In its response to the consultations, authorities from the Saint Vincent and the Grenadines said they would seek to improve tax compliance rates through enhanced enforcement efforts and staff training, including through auditing work; complete the full implementation of the electronic filing and payments system; implement the recommendations of the report on data matching between the Customs and Excise Department and the Inland Revenue Department, establish an arrears monitoring and management system; and undertake public sector retrenchment measures.
The territory hopes that the measures – alongside the recent introduction of a market-based property tax and the creation of a large taxpayers unit – will enable the territory to achieve a surplus of two percent of GDP by 2019.
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