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Seychelles Needs To Offset Income Tax Cuts: IMF

by Lorys Charalambous,, Cyprus

29 March 2016

The statement following an International Monetary Fund (IMF) staff mission to the Seychelles from March 9-22 said that the anti-poverty initiatives mentioned in last month's State of the Nation Address need to be counteracted by other measures.

In his Address, the President of the Seychelles, James Michel, disclosed that, as well as minimum wage and pension increases, changes will be made from July 2016 to the personal income tax system, designed to make it more progressive and reduce the tax burden on low-income earners.

At the conclusion of the IMF's visit to conduct discussions on the fourth review under the Extended Fund Facility (EFF) arrangement with the Seychelles, the mission noted that, while the economy performed positively in 2015, "slowing growth or recession in a number of key tourism markets could weigh on economic developments in 2016."

In January this year, at the end of the IMF's third EFF review, the IMF had concluded that "continued fiscal discipline will be a critical anchor for macroeconomic stability." It was confirmed that fiscal policy in 2016 continued to target a primary surplus of 3.8 percent of gross domestic product (GDP).

However, the IMF's latest mission estimated that the newly announced measures "would entail substantial fiscal costs – around three percent of GDP on a full-year basis."

It therefore concluded that "it is important that policies to ensure that the economic benefits from years of strong fiscal consolidation are shared more widely do not undermine macroeconomic stability. The mission therefore recommends that [the new measures] be accompanied by offsetting measures to avoid putting pressure on the balance of payments, inflation, and public debt."

In that respect, immediately following the IMF mission, the Central Bank of Seychelles (CBS) took steps to reduce the excess liquidity within the monetary system. It was said that, after analyzing the recent measures announced by the Government, CBS was counteracting an expected increase in liquidity and demand for foreign currency in the coming months.

TAGS: tax | economics | value added tax (VAT) | fiscal policy | gross domestic product (GDP) | International Monetary Fund (IMF) | individual income tax | Seychelles

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