Posted: Friday, March 12, 2021. 4:04 pm CST.
By Aaron Humes: The International Monetary Fund (IMF) is calling for changes to the General Sales Tax (GST) regime of Belize despite Prime Minister John Briceno ruling it out.
It calls for reducing the number of zero-rated items under GST, moving them to the standard 12.5 percent rate instead, and in fact raising that rate to a level in line with peer countries.
GST, it says, should be also be levied on the hotel sector rather than the nine percent hotel/tourist accommodation tax administered by the Belize Tourism Board (BTB).
Other options to mobilize revenues include lowering the threshold for exemption in the personal income tax, increasing excise taxes, and enhancing revenue and customs administration.
The IMF acknowledges this will be challenging given the current climate, but calls for “resolve and commitment in undertaking the adjustment needed to restore debt sustainability and market confidence. Moreover, the adjustment needed to reach the primary balance targets could be larger if the cyclical recovery of revenue is weaker than expected.” A contingency plan needs to be in place including further increases in the GST rate and larger cuts to nonpriority expenditure.
The Fiscal Responsibility Law the IMF also called for would include systems and procedures for multi-year budget preparations, cash management, fiscal risk assessment, public investment management, and coverage of government accounts. The authorities should also ensure transparency and accountability in crisis-related spending, including by publishing the audit reports when they become available.
It argues that increases in the primary balance are needed to restore debt sustainability and target 3 percent of GDP by fiscal year 2024-2025, to be continued until 2031-32, which relative to the baseline scenario, implies a fiscal consolidation of 3.9 percentage points of GDP over the next four years.
While commendable, the IMF says simply reducing the wage bill and purchases of goods and services as well as prioritizing infrastructure projects are not enough.
Belize also needs to set aside, it says, literally for a “rainy day”: a natural disaster reserve fund to fund the response to natural disasters and increase targeted social spending.
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