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The International Monetary Fund (IMF) has said that St Kitts and Nevis should adopt measures to prevent adverse affects on Government finances from the new exemptions from value-added tax (VAT) and import duties.
From April 7 this year, the Government exempted food, medicine, and funeral expenses from VAT. Exemptions had already been in place for bread, flour, fuel, infant formula, disposable diapers, milk, oats, rice, and sugar, among other items.
The Fund said that the Government's current budget surplus position allows it to absorb the impact of the tax exemptions in the short term, but the Fund warned the Government that it is heavily reliant on volatile Citizenship by Investment inflows. This could undermine efforts to reduce the ratio of debt to gross domestic product (GDP) to 60 percent by 2020, it said.
The IMF encouraged St Kitts to implement corrective measures to close the gap created by the exemptions, including by substantially reducing tax exemptions for construction projects.
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