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IMF Releases Tax Recommendations For San Marino

by Lorys Charalambous,, Cyprus

13 April 2015

The International Monetary Fund has released (IMF) its Article IV consultation report for San Marino, including recommendations that the territory reinstate a real estate tax or increase the rate of the value-added tax, which is proposed to be introduced from 2016.

The Fund has recommended that San Marino pursue a gradual consolidation of the deficit worth 2.5 percent of gross domestic product (GDP) over the next five years. This would rebuild fiscal buffers lost during the crisis, when financial assistance was required by the banking sector. In 2014 a major income tax reform was passed, adjusting tax brackets, increasing tax rates, and reducing exemptions, and the IMF has reported that the deficit declined to 1.1 percent of GDP in 2014, down from 4.1 percent in 2011.

Together with the introduction of an electronic certification system to enhance collection, 2014 tax revenue is projected to have increased by almost 1.5 percent of GDP to 17 percent of GDP.

The Fund said: "The planned introduction of the VAT is welcome and efforts should be made to find additional revenue sources. In particular, a real estate tax yielding about one percent of GDP would provide an equitable and efficient source of income. Alternatively, raising the VAT rate above its planned level could be considered. The decision on the actual rate should be informed by an analysis of projected VAT revenue and its sensitivity to the VAT rate. Exemptions from the standard VAT rate should be limited to a narrow set of basic goods. An increase of the corporate tax rate is not advisable, as it would negatively affect competitiveness."

TAGS: compliance | VAT rates | tax | pensions | value added tax (VAT) | public sector | banking | budget | tax rates | Italy | tax reform | San Marino

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