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Dominica Plans To Re-Start Offshore Sector

by Leroy Baker,, New York

25 July 2007

Dominica's Prime Minister and Minister for Finance and Planning, Roosevelt Skerrit, presented his budget last week, saying that the government was reviewing the offshore sector with a view to re-launching it. Dominica saw some bank scandals before embarking on a major cleaning-up operation five years ago.

Skerrit announced that he would implement tax-cutting recommendations of the Income Tax Task Force by increasing personal income tax allowances and reducing tax rates over a three-year period.

As from 2008 the non-taxable personal allowance will be increased from $15,000 to $18,000. The tax rate on the first $20,000 (up from $18,000) of chargeable income will be reduced from 20% to 18%; the rate on the next $30,000 of chargeable income will be reduced from 30% to 28%; and the rate on chargeable income above $50,000 will be reduced from 40% to 38%. These moves will cost the Treasury at least $7.7 million. Further improvements are to follow in 2009 and 2010.

The budget sees total revenue including loan receipts of $327.5 million, with overall expenditure including loan amortisation at $326.0 million, resulting in an overall surplus of $1.5 million for the current fiscal year.

The Prime Minister told Parliament that the Government had undertaken a review of the offshore financial services sector through a technically equipped Task Force and is in the process of developing other revenue initiatives. 'To this end, we are pursuing the offshore sector with renewed vigour and determination. We intend to avoid the mistakes of the past and come up with a sector that is not only clean but is also vibrant. To imbue new confidence and dynamism in this area of economic endeavour, it is my intention to appoint a new Minister to head this sector. We are ready to appoint a qualified person from anywhere in the political spectrum who is ready to take this responsibility and act in the best interest of all Dominicans,' he said.

Last May, the International Monetary Fund reported after an Article IV Consultation with Dominica that: "Dominica's economic performance has been strong and its short-term outlook is largely positive. The economy grew by an estimated 4 percent last year, the strongest in nearly two decades, while inflation was below 2 percent."

"Discussions centered on fiscal and financial sector policies and structural reforms that are crucial for sustaining macroeconomic stability and fostering continued strong growth while reducing poverty. The mission discussed with the authorities challenges on the fiscal front, in particular the prospects for aid and its management as well as tax and expenditure policies."

"The mission welcomed the authorities' intention to target a primary surplus of 3 percent of GDP under their Growth and Social Protection Strategy. Given upcoming wage increases, fiscal flexibility is constrained for the next year and hence a delicate balance needs to be struck between tax reductions or exemptions, on the one hand, and investment spending on the other."

"As regards the financial sector, the recent pace of credit expansion, while anticipated from the successful fiscal consolidation, may require further enhanced supervision, including on-site inspection. In addition, further progress is needed in establishing a regulatory and supervisory system over nonbank financial intermediaries. The mission also discussed key areas that could help reduce costs of doing business, including reforms of public entities, utilities, the judiciary, and customs."

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