THE Government has committed to cut back the amount of tax it doesn’t collect on exempt items and incentives to the tune of $40 billion within three years.

It also hopes to exchange $20 billion worth of property for debt over the next four years, while yanking its backing of another $20 billion in debt owed by public bodies.

Under the new agreement with the International Monetary Fund (IMF), tax reform will aim to reduce tax expenditures, as it is called, from six per cent of GDP, or $80 billion in recent years to 2.5 per cent of GDP, or $41 billion by the end of 2015/16.

“Achievement of this objective will be reviewed in consultation with IMF and Inter-American Development Bank (IDB) staff, and this assessment will correct for unforeseen significant shifts in economic structure,” said the memorandum of economic and financial policies document, which was submitted to the IMF last month.

The Government plans to consider further reduction in statutory rates on GCT, SCT, and taxes on international trade will be considered, but only after improvement in revenue collection are realised from reform measures.

Reducing the number of zero-rated items and “greatly reducing tax and tariff exemptions” will seek to broaden the tax base, but those are only a part of the measures.

Only a handful of Government contractors, which mostly include foreign firms such as China Harbour Engineering Company, Kier Construction and Complant, will not be subject to a cap on discretionary waivers.

While a few sectors — including tourism and attractions, the motion picture industry and agriculture — will be allowed to get waivers above a new cap to be set at $10 million a month.

“Discretionary waivers, excluding those granted to charitable organisations and for charitable purposes, will no longer be granted except when this is required to satisfy the GOJ’s contractual or other legal obligations,” said the document.

What’s more, total discretionary waivers, excluding those to charitable organisations will be capped at $80 million per month.

“Waivers to charitable organisations and for charitable purposes will be capped at a level equivalent to the average of the last three years,” added the document. “This cap is determined at $250 million on a monthly basis.”

The Government promised the IMF that Parliament would “adopt amendments to the relevant tax acts to harmonise the tax treatment for charities across tax types and remove ministerial discretion to grant waivers for charities and charitable purposes” by the end of

this month.

It also has committed to tabling a Charities Bill and a new Omnibus Tax Incentive Act, aimed at “eliminating ministerial discretionary powers to grant or validate any tax relief”, by the end of September.

By November’s end, the Government is expected to cease granting waivers to charities other than under the Charities Bill, and by the end of 2013, all incentives under the regime prior to the new Omnibus Act and discretionary tax waivers are to cease.

“Broader tax reform to become effective, including the modernisation of taxes, with limited exemptions, and lower tax rates March 31, 2014,” said the document.

The commitment to reduce public debt through debt-asset swaps (based on land, buildings, etc) by at least one per cent of GDP over the programme period translates into the transfer of $20 billion worth of property by 2017.

“A preliminary valuation of these assets will be completed by end June 2013,” said the memorandum. “The legal and administrative processes involved in the exchange of these assets will be fully elaborated, an action plan for their completion developed by September 2013 and the specific operations will be executed before end 2013/14.”

The Government also committed to the withdraw guarantees issued to underwrite private domestic loans to public entities, equivalent to at least one per cent of GDP.

“The Government will establish the modalities and legal requirements to effect the reduction in guarantees and execute the specific operations before end 2013/14,” it said.