Omnibus, other reforms to bring in $4b more taxes in new fiscal year
THE Government plans to implement further tax reform — including the removal of most exemptions and all zero rated items for GCT — in the upcoming fiscal year, which begins April 1.
But an Inter-American Development Bank (IDB) study shows that the new omnibus legislation and other measures already put in place should conservatively bring in an additional US$38million ($3.9 billion) in tax revenue next fiscal year (FY2014/15).
The full impact of the reform measures is estimated to be US$125 million, but the multilateral lender projected that just 30 per cent would be realized in FY 2014/15, and that the benefits would gradually increase over the next few years until they are fully realized in 2016/17.
The bulk of the increased revenue from existing tax reform measures in the upcoming fiscal year is expected to come from corporate tax — US$11 million — followed by GCT, US$10.9million and changes to tax incentive laws, which is expected to claw back US$6.9 million from businesses next year alone.
IDB documents accompanying recently approved funding an US$80 million loan for fiscal structural programme for economic growth stated that broader tax reform will become effective at the start of FY2014/15.
"The tax reform should include legislation to modernise income tax, customs tariffs, and social security contributions, including the administration of the National Insurance Scheme (NIS),"said IDB documents, which add that tax and tariff exemptions in all major taxes, excepting for a limited number of specific goods and services, would be greatly reduced.
Changes to GCT include the removal of Government purchases from the GCT zero rate list and a broadening of the the tax base by limiting the zero rate to exports and reducing the number of exempted goods and services.
The IDB document also reiterated that an evaluation of the possibility of further broadening the GCT tax base by including petroleum products within the GCT taxable base is being done.
"Including petroleum products in the GCT requires adjustment of the SCT to ensure consumer prices of petroleum products and its derivatives do not change significantly," said IDB documents.
On the other hand, depending on the improvements in revenue associated with these reforms, the Government will consider a phased reduction of the statutory rates of the main taxes.
"The Government is considering a prudent reduction in tax rates after FY 2014/15," the document continued. "This reduction will be subject to improvements in revenue associated with the initial reforms implemented in FY 2013/14 and FY 2014/15.
The IDB study was prepared to estimate the financial benefits generated by the introduction of a set of fiscal reforms aimed at strengthening the country's fiscal position as well as at achieving the sustainability of public financing and of economic growth.