Nicaragua Urged To Plug Leaking VAT System

by Mike Godfrey, Tax-News.com, Washington

04 July 2017

Nicaragua should reduce the complexity of its value-added tax system and overhaul exemptions to boost voluntary compliance rates, the International Monetary Fund (IMF) has said.

The IMF said that high tax evasion rates can be linked to the complex system of tax exemptions, which cover a wide range of goods and services. It added that wealthier households exclusively benefit from more than half of these exemptions and recommended that such tax breaks be removed while retaining those measures that support poorer households.

Specifically, it said Nicaragua should maintain exemptions for a few basic goods that are most consumed by the poor or introduce a second, lower VAT rate of five percent, which could be applied to certain budget goods rather than the full 15 percent rate.

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