IF GOVERNMENT were to raise Value Added Tax (VAT) to 17 from 15 per cent, this would boost revenues by as much as 1.25 per cent of gross domestic product (GDP).

This comes from the International Monetary Fund (IMF) as it continues to encourage the Owen Arthur Administration to increase VAT in a bid to reduce Government's growing debt gap.

The IMF further stated that additional savings could be generated if more goods and services were drawn into the VAT net.

These suggestions have come in that Washington-based economic monitoring institution's report on the Article IV consultation it held with the Government, Opposition and private sector of Barbados from July 10 to 19.

The report, which was completed on August 19 and released on Monday, expressed concerns that Government was not going far enough if it was to meet its "ambitious" target of reducing government debt to less than 60 per cent of GDP by 2012.

The ratio of debt to GDP currently stands at 73 per cent.

In what it described as a "menu of options", the IMF encouraged Government to reduce a number of large-scale public projects that would add an estimated ten per cent of GDP to the public debt.

The IMF also advised Government to make improvements to its tax administration, and supported the planned establishment of a Central Revenue Authority to bring different tax offices under one umbrella, which would generate additional savings.

The IMF advisors also suggested Government should raise prices for public transportation, natural gas and water where it was evident that the prices charged were below operating costs.

However, it said this could be combined with "targeted support" for vulnerable groups.

And, while Barbados has built a thriving international business sector through a network of tax incentives, the IMF has suggested Government cut back these attractive benefits because they were in fact driving up costs.

It calculated that tax expenditures arising from the various incentives for foreign investors had cost six per cent of GDP between 2005 and 2006.

In all, the IMF said, if Government followed its prescriptions, savings worth eight to ten per cent of GDP could be generated. (CH)