Reforming Tax Incentives to Support Sustainable Development

Transcription

1 Reforming Tax Incentives to Support Sustainable Development A Caribbean Perspective: Saint Lucia s Roadmap Dr. Reginald Darius Permanent Secretary, Ministry of Finance Saint Lucia

2 Background Revenue performance Fiscal and Growth Tax Incentives Structure Cost Vs Benefits of Fiscal Incentives Fiscal Incentive Reform- Saint Lucia Proposed Reform Agenda Progress to Date/Challenges Conclusion

3 Tax Revenue (% GDP) Country Avg Avg Average Tax Revenue (as percent of GDP) Antigua & Barbuda Bahamas Barbados Dominica Grenada Jamaica St. Kitts & Nevis St. Lucia St. Vincent & the Grenadines ECCU Latin America and the Caribbean OECD Trinidad &Tobago Source: WB DataBank, Author s Calculation 3

4 Revenue Composition (In Percent of Revenue) Direct Taxes Indirect Taxes Other Revenue Source: WB DataBank, IMF WEO Database, Country Reports 4

5 Caribbean: Debt and Fiscal Balance (2014, in percent of GDP) Debt/GDP 160 Jamaica Barbados Grenada Antigua 100 St. Vincent St. Lucia 80 Dominica St. Kitts 60 Bahamas Trinidad Fiscal Deficit/Suplus 5

6 GDP Growth Rates (%) LAC (Developing Only) Small states Emerging Market and Developing Economies Caribbean

7 Improving Investment & Business Climate Stimulating Economic Growth Fiscal Consolidation Restoring Fiscal & Debt Sustainability

8 Saint Lucia is the pilot for the ECCU Business Taxation Reform with support from the IFC Assistance provided to improve the administrative, regulatory and institutional framework for paying taxes Rationalization of the tax incentive being a core component

9 Incentives Corporate Income Tax Holidays (5-25years) Import duties on imports of plant, equipment and inputs (up to 100% waiver) VAT Exemptions and Zero Rating Property Tax Exemptions 9

10 14.00 Net Inflows of FDI (% of GDP) (Period Averages) Saint Lucia ECCU LAC Small States Middle Income States Source: WB DataBank

11 Revenue Forgone (Tax Type) (% of GDP) (Average ) Revenue Forgone (By Activity) (% of GDP) (Average ) Dominica* St.Kitts and Nevis St.Lucia St.Lucia St.Kitts and Nevis Dominica* CT/VAT Import Duties Excise Tax CIT Tourism Industry Other Source: IMF Country Estimates (2013) * Dominica average * Dominica average

12 Clarifying the role of incentives in attracting FDI Simplify existing framework of incentives Targeting incentives to maximize economic growth impact and minimize revenue leakages Regular monitoring and assessment of impact of incentives

13 Assess Effectiveness of Existing Regime Increase Predictability & Transparency Improve Communication on Incentives Regional Harmonization & Integration Investor Motivation Study Inventory of Incentives Cost/Benefit Analysis Rationalize Incentive Framework Revise Legislation/ Regulations/ Procedures Tax Expenditure Budgeting Targeted Communication Strategy Draft Regional Policy Guideline Facilitate design of Regional Policy Framework

14 Simplified Legislation Consolidation of tax incentives currently under varying instruments into the tax laws Limit Discretion Rules-base approach Limit use of executive discretion Incentives administered by tax agencies Improved Transparency Estimate and publish tax expenditure statements, highlighting largest beneficiaries by individual tax payer and sector

15 Regular Assessments Periodic reviews of existing incentives, evaluated against stated objectives Minimize Revenue leakage Minimum taxes to replace tax holidays and link the continuation of incentives to investments Regional Tax Harmonization Limit harmful tax competition through regional cooperation on tax incentives

16 Progress Inventory of Incentives Estimating Tax Expenditure Capacity Building Challenges Data limitations Crafting a framework acceptable to the executive Managing change process (private sector buy-in)

17 While tax incentives can be useful in attracting FDI, the costs in terms of revenue forgone is significant in the ECCU. Ongoing reforms are aimed at improving transparency, simplicity and certainty in the application and administration of tax incentives. Data limitations and political buy-in remain major challenges to the reform process.

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