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IMF study: Fix the tax system

SHAWN CUMBERBATCH, [email protected]

IMF study: Fix the tax system

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BARBADOS’ TAXATION SYSTEM needs fixing, a new International Monetary Fund (IMF) study has concluded.

In a working paper, Tax Administration Reforms In The Caribbean: Challenges, Achievements, And Next Steps, IMF senior economist Stephane Schlotterbeck said establishment of the Barbados Revenue Authority (BRA)“has distracted the authorities from the needed reforms, which have, unfortunately, received insufficient attention and resources”.

The BRA’s board of management also needs to be strengthened, the study said.

“The board has an important role to play with respect to setting out expectations and approving corporate plans; ensuring that existing reporting mechanisms are in place that allow the board/revenue authority to monitor performance against targets, set service standards, and validate financial statements; establishing policies on HR, financial management, and enterprise risk management; and ensuring that the [revenue authority] achieves the desired results while complying with all statutory requirements.”

Schlotterbeck also raised concern about the value added tax (VAT) system: “In Barbados, the VAT’s architecture has also deteriorated since its inception; nearly 20 broad categories of goods and services are zero-rated.”

“The VAT legislation also provides for the extensive zero-rating of both inputs and final goods, ex post waivers of VAT due, and overly generous refund provisions that have undermined the VAT.”

The research reviewed tax administration reforms undertaken by 20 Caribbean countries with the support of the IMF’s Fiscal Affairs Department and the Barbados-based Caribbean Regional Technical Assistance Centre since its inception in 2001.

Schlotterbeck said the study was intended to “describe the main drivers and characteristics of the reforms of the tax systems and their administration(s) in the Caribbean countries, and to determine whether these reforms have achieved their intended outcomes, particularly in regard to revenue mobilisation”.

In the case of Barbados, the economist pointed to several shortcomings in the system.

“In Barbados, establishing the BRA was also seen as a vehicle for achieving the integration of direct and indirect taxes. However, the integration of tax and customs administrations has been postponed several times as a result of unsuccessful Government and trade union negotiations,” Schlotterbeck observed.

“There is no dedicated structure dealing with large taxpayers. A specific programme has been designed to monitor the filing and payment obligations of the top 200 taxpayers, but has yet to be fully implemented. The BRA is now contemplating a more effective way to administer large and medium taxpayers.”

One positive, the report said, was that like Jamaica, the authorities “have started to concentrate on institutional risk management in a structured and systematic manner”.

“However, it is too early to measure the value added of these arrangements on decision making, resource allocation, and operational effectiveness,” it added.

Looking at the overall Caribbean tax system, the report said “governments in this region have been confronted with the difficult challenges of addressing short-term needs for mobilising revenues and reducing deficits, as well as of embarking on longer-term structural reforms”. (SC)