## wp1788 ## Source details **Canonical URL:** [wp1788](https://www.imf.org/-/media/files/publications/wp/2017/wp1788.pdf) ## Other formats - [Markdown version](/-/media/files/publications/wp/2017/wp1788.pdf.md) - [Structured JSON version](/-/media/files/publications/wp/2017/wp1788.pdf.json) --- ### I. Introduction — scope and purpose - Reviews tax administration reforms undertaken by 20 Caribbean countries with IMF Fiscal Affairs Department and CARTAC support since 2001. - Focus: CARICOM member states and associate members: Anguilla, Antigua and Barbuda, the Bahamas, Barbados, Belize, Bermuda, the British Virgin Islands, Cayman Islands, Dominica, Grenada, Guyana, Haiti, Jamaica, Montserrat, St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines, Suriname, Trinidad and Tobago, and Turks and Caicos. - Population and geography: - Total population: 17 million inhabitants. - Haiti population: 10.9 million. - Montserrat population: 5,000. - Surface area: 1,063,000 sq. mi; more than 700 islands. - Purpose: - Describe main drivers and characteristics of tax system and administration reforms. - Determine whether reforms achieved intended outcomes, particularly revenue mobilization. - Assess impact on nonrevenue performance indicators: tax base expansion, tax system simplification, compliance levels, and tax administration effectiveness and efficiency. ### II. Background — fiscal situation and revenue performance - Growth patterns: - Tourism-based economies: growth doubled from 1.1 percent in 2014 to 2.2 percent in 2016. - Commodity exporters: decline for second consecutive year: 0.9 percent in 2015 and 0.6 percent in 2016. - Suriname and Trinidad and Tobago most affected. - Belize and Guyana offset effects: tourism in Belize; oil imports in Guyana. - Real GDP growth (selected countries, 2013–2016): - Antigua and Barbuda: 2013 1.5; 2014 4.2; 2015 2.2; 2016 2.0 - Bahamas: 2013 0.0; 2014 -0.5; 2015 -1.7; 2016 0.0 - Barbados: 2013 -0.1; 2014 0.2; 2015 0.9; 2016 1.4 - Belize: 2013 0.7; 2014 4.1; 2015 1.9; 2016 -1.0 - Dominica: 2013 0.8; 2014 4.2; 2015 -1.8; 2016 0.8 - Grenada: 2013 2.4; 2014 7.3; 2015 6.2; 2016 3.1 - Jamaica: 2013 0.2; 2014 0.5; 2015 1.1; 2016 2.2 - St. Kitts and Nevis: 2013 6.2; 2014 6.1; 2015 6.6; 2016 4.7 - St. Lucia: 2013 0.1; 2014 0.5; 2015 1.6; 2016 1.4 - St. Vincent and the Grenadines: 2013 2.5; 2014 0.2; 2015 0.6; 2016 1.8 - Guyana: 2013 5.2; 2014 3.2; 2015 2.6; 2016 3.4 - Suriname: 2013 2.8; 2014 1.8; 2015 0.1; 2016 -2.0 - Trinidad and Tobago: 2013 2.3; 2014 -1.0; 2015 -1.8; 2016 -1.1 - Haiti: 2013 4.2; 2014 2.8; 2015 1.2; 2016 1.5 - Fiscal indicators and vulnerabilities: - Fiscal deficits average around 4 percent of GDP. - Sovereign indebtedness average about 82 percent of GDP in 2014, increased to an average of 85 percent in 2015. - Public debt remains high, particularly in tourism-dependent economies. - Countries remain vulnerable to economic and weather-related shocks; low potential growth, stagnant productivity, high business costs. - Policy priorities suggested: - Reduce processing costs at ports and customs. - Continue energy reform to reduce fossil fuel dependence, improve efficiency, reduce costs, and improve business environment. ### III. Trends and challenges in tax administration reforms - Characteristics and persistent problems: - Eight out of 20 are small or micro administrations with less than 100 staff members. - Persistent problems include organizational inefficiencies, pervasive data integrity issues, out-of-date processes, low capacity, operational ineffectiveness, widening compliance gaps (including for VAT). - Reform measures supported by IMF, CARTAC, SEMCAR, Canadian government, IADB: - Establishing/strengthening headquarters for strategic planning and supervision. - Reorganizing field operations by type of taxpayer to focus on larger taxpayers. - Building capacity in taxpayer service, audit, collection enforcement, and support service. - Upgrading IT systems to support key operations and improve service delivery. - Reengineering business processes toward automation. - Applying a risk-based approach to manage compliance. - Improving the legal framework to support key operations. - Increasing transparency and accountability. - Enhancing institutional and individual performance management. - Ongoing need: - Tax policy measures to raise more revenue while modernizing tax administration. ### IV. Modernization of the tax system — main directions and issues - Main tax policy direction: - VAT introduction is the most important reform; shift away from reliance on import duties toward domestic revenue sources. - VAT viewed as instrument to replace inefficient taxes, broaden base, and generate stable revenue. - Other policy reforms in some countries: - Simplifying individual income taxes and broadening CIT bases (Dominica, St. Lucia). - Scaling back generous tax incentives or shifting to rules-based transparent incentive systems (Jamaica, Grenada). - Reducing high/distortive nominal taxes and duty rates. - Modernizing property taxes and their administration. - Tax policy issues requiring closer attention (verbatim): - “Tax competition, a race to the bottom.” Tax incentives have become pervasive and result in substantial tax expenditures. Recent studies estimate revenue forgone for main taxes (VAT, import duties, excises, and the CIT) at about 4.0 to 6.5 percent of GDP in Antigua and Barbuda, Dominica and St. Kitts and Nevis; above 7 percent of GDP in Grenada, St. Lucia, and St. Vincent and the Grenadines; and nearly 10 percent of GDP in Jamaica. - Complexity of the personal income tax (PIT) system: decades of incremental changes, multiple allowances and deductions, high nonfiling rate (nonfiling rate is above 50 percent in the region). Example: Barbados — 68,000 out of 90,000 PIT taxpayers qualify for refunds. - Lack of small business tax regimes: only a few countries (e.g., Grenada and St. Lucia) have introduced/planned turnover-based presumptive tax regimes. - Modernization of international tax rules needed: cross-country business income tax rate variation from 15 percent to 45 percent; absence/weakness of transfer pricing legislation encourages profit shifting by MNEs. - Property tax regimes are dated and inefficient: tax revenue from property taxes averages 0.6 percent of GDP in the region versus 2.1 percent of GDP on average in OECD countries. ### V. Tax administration reforms — governance models and experience - Two governance models: - Regular tax departments within ministries of finance (majority). - Semiautonomous agencies (SARA/Semiautonomous Revenue Agencies/Authorities). - Status of semiautonomous agencies: - Three countries have national semiautonomous agencies: Barbados (BRA), Guyana (GRA), and Jamaica (TAJ). Trinidad and Tobago contemplating; Bahamas initiated creation of a Unified Revenue Agency/Revenue Authority. - In Barbados and Guyana the RA integrates tax and customs operations; in Jamaica TAJ is a semiautonomous tax agency. - Drivers for semiautonomous RAs (verbatim): - (i) provide more autonomy to manage resources; - (ii) improve effectiveness in managing compliance by enhancing synergies and exchange of information between tax and customs; - (iii) increase efficiency by sharing common services (e.g., budget and HR management, and IT support); - (iv) foster transparency and accountability. - Observed outcomes and limitations: - Creation primarily triggered by need to remove HRM impediments and foster public servants’ accountability. - Jamaica used the opportunity to repackage staff remuneration and review technical qualifications and standards. - Integration of Customs and Excise Department in Barbados delayed; only excise section integrated so far. - Lack of data demonstrating positive impact on revenue administrations’ efficiency. - Reform helped develop a culture of performance, but civil servant accountability has not evolved significantly. - Conclusion: semiautonomous agencies are not a panacea; without strengthening HQ functions, shifting to functional approaches, taxpayer segmentation, compliance and performance management, data exchange, and modernizing IT systems, impact on revenue mobilization is limited or absent. - Institutional mapping (selected entries, verbatim): - Anguilla: Tax Dept. IRD - Antigua and Barbuda: Tax Dept. IRD - Bahamas: Tax Dept. IRD - Barbados: Revenue Authority BRA - Belize: Tax Dept. DGST and ITD - Bermuda: Other OTC - Dominica: Tax Dept. IRD - Grenada: Tax Dept. IRD - Guyana: Revenue Authority GRA - Haiti: Other (DGI) Gen. Directorate - Jamaica: Revenue Authority (TAJ) SARA - Montserrat: Other Informal RA - St. Kitts and Nevis: Tax Dept. IRD - St. Lucia: Tax Dept. IRD - St. Vincent and the Grenadines: Tax Dept. IRD - Suriname: Other DTD, ITD, customs reporting to a director of taxes - Trinidad and Tobago: Tax Dept. IRD - Turks and Caicos: Tax Dept. IRD ### Structural reorganization, segmentation, and LTO/LMTO experience - Main trends: - Integration of tax operations across major tax types, reorganization of field delivery along segmentation principles, and adoption of a functional approach (registration, returns and payments processing, auditing). - Reforms have yet to produce expected effectiveness and efficiency outcomes in many countries. - Segmentation and concentration: - A very small proportion of taxpayers (often less than 10 percent, sometimes just a few percent) account for 70–80 percent of revenues. - Recent regional studies on VAT indicate that 95–97 percent of the VAT is paid by large and medium taxpayers. - Large taxpayer units: - LTUs established in larger islands to administer businesses whose turnover exceeds US$ 1 million. - Jamaica has a dedicated unit within the LTU to monitor high net-worth individuals (HNWIs). - Examples of LTO/LMTO impact: - Jamaica: tax-to-GDP ratio rose from 23.9 percent in FY 2010 to 24.9 percent in FY 2016 (+1 percent of GDP). - Dominica: LMTO began operating in 2013; total revenue increased by 5.9 percent between 2012 and 2014. - St. Kitts and Nevis: revenue collection from large taxpayers increased by 16.8 percent between 2013 and 2015. - Haiti: tax-to-GDP ratio was just above 8 percent in 1996 and is expected to reach 14.7 percent during FY 2016 (+6.7 percent of GDP). - Factors limiting revenue gains from LTO/LMTO: - post-financial crisis negative impact on large taxpayers’ turnovers and profitability; - tax incentives and allowances disproportionately benefit largest taxpayers; - ongoing integration challenges and noncommunicant IT systems; significant gap between VAT and CIT performance; - limited management of international transactions (transfer pricing and thin capitalization); - intensified audit efforts produced accumulation of tax arrears; - frequent tax amnesties created a “wait and see” attitude. ### Modernization of the legal framework and strategic management - Legal weaknesses (common, verbatim themes): - limited access to third party information; - insufficient power to serve liens, seize assets, enforce garnishment, and engage third party director’s liability; - inconsistencies in application of interests, penalties, and sanctions across legislations; - lack of provisions to write off uncollectible debts; - absence of broad anti-avoidance provisions. - Trend toward integrating procedures into a single Tax Administration Procedure Act (TAPA) or Tax Procedure Bill; CARTAC developed a model TAPA. - Strategic management and risk: - CARTAC and SEMCAR assisted design of multiyear corporate strategic business plans (CSBPs) with customer-oriented approaches and risk management principles. - Implementation gaps: strategies often not translated into operational plans; limited oversight and staff ownership. - Risk management application is immature; intelligence activities embryonic; only Guyana and Jamaica have systematic data exchange with customs. ### Performance, HR, and training - Institutional performance measurement is weak: KPIs identified but not regularly monitored; IMF tool RA-FIT underutilized. - Individual performance management is nascent: limited goal setting and feedback. - HRM challenges: - Public service rules rigid and ineffective; PSCs constrain recruitment, discipline, and removal flexibilities. - Guyana, Barbados, and Jamaica established semiautonomous agencies to obtain greater staffing autonomy. - Many administrations use term contracts; contractual employees sometimes exceed 20 percent of the workforce. - Training shortcomings: - Training poorly planned, insufficiently resourced, not aligned with reform needs. - Only TAJ has a structured induction training program (available to tax auditors). - Delivery is donor-dependent with limited follow-up and transfer of know-how. ### IT systems, automation, and operational management - IT systems status: - Seven OECS countries plus Belize use a Caribbean version of SIGTAS developed during the 1990s which no longer supports operations. - Guyana: GRA uses TRIP; Barbados: BRA attempting to merge VITAS and ITAX. - 2009 CARTAC evaluation: “SIGTAS is not a strategic future component for the tax business and its replacement is urgent.” - Three countries recently purchased new systems: Jamaica (GENTAX), the Bahamas and Haiti (DATA TORQUE). - DATA TORQUE contributed to the success of VAT introduction in the Bahamas. - Automation and process efficiency: - Collection costs (gross revenue/aggregate expenditures) in the region are high; bulk of transactions remain paper based. - E-procedures available for core taxes but uptake low: - Jamaica e-filing rates: 16 percent for VAT and CIT, 14 percent for PAYE, and 1 percent for PIT; e-payment (in value) is less than 6 percent. - Barbados e-filing remains below 30 percent for income tax. - Causes of low uptake: insufficient publicity, faulty strategic direction, prioritization of large businesses. - Jamaica introduced legal changes to make e-filing and e-payment mandatory, at least for large taxpayers. ### Registration, filing, audit, collections, disputes, and taxpayer service — key statistics and findings - Taxpayer registers and informality: - Most countries (except Bermuda, Trinidad and Tobago, and St. Vincent and the Grenadines) have unique TINs. - Hidden (cash) economy ranges between 23 and 65 percent of GDP, with a median of 38.8 percent (Schneider (2014)). - Percentage of inactive taxpayers (selected entries): - Barbados: Inactive VAT payers 16; Inactive CIT payers 48; Inactive PAYE payers 42; Inactive PIT payers 44 - Belize: Inactive VAT payers 15; Inactive CIT payers 80 - Grenada: Inactive VAT payers 21.1 - Jamaica: Inactive VAT payers 49.7; Inactive CIT payers 37.8 - St. Lucia: Inactive VAT payers 9.40; Inactive CIT payers 11.40 - St. Vincent and the Grenadines: Inactive VAT payers 8.6; Inactive CIT payers 4.3; Inactive PAYE payers 38.1; Inactive PIT payers 0.1 - Average: Inactive VAT payers 20; Inactive CIT payers 45 - On-time filing rates (selected entries, averages from Table 6): - Bahamas: VAT/GST 75% - Barbados: VAT/GST 45%, CIT 55%, PIT 90% - Belize: CIT 68%, PAYE 57% - Dominica: VAT/GST 80%, CIT 65%, PAYE 60% - Grenada: VAT/GST 81%, CIT 24%, PAYE 45%, PIT 30% - Guyana: VAT/GST 43% - Haiti: VAT/GST 70% - Jamaica: VAT/GST 65%, CIT 69%, PAYE 60%, PIT 67% - St. Kitts and Nevis: VAT/GST 68%, CIT 50% - St. Lucia: VAT/GST 65%, CIT 10%, PAYE 42% - St. Vincent and the Grenadines: VAT/GST 12.4%, CIT 8.8%, PAYE 28.8%, PIT 10.1% - Regional average: VAT/GST 62%, CIT 43.7%, PAYE 48.8%, PIT 49% - Audit effectiveness: - Audit productivity low; audit coverage low; preference for comprehensive audits over issue-oriented audits in a proportion of three to one. - Audit assessment objections high in some countries (example: Jamaica and Trinidad with objection rates at 70 to 90 percent). - Collection enforcement — arrears (selected entries and regional averages): - On average, the stock of tax arrears exceeds 68 percent of annual tax collection. - Specific country ratios (Value of arrears as % of total tax collection): - Anguilla 50; Antigua and Barbuda 118.3; Barbados 36; Belize 39.8; Bermuda 38; BVI 69.8; Dominica 59.5; Grenada 38.6; Jamaica 131; Montserrat 56.1; St. Kitts and Nevis 39; St. Lucia 176.6; St. Vincent and the Grenadines 113; Trinidad and Tobago 10.9; Turks and Caicos 50 - Regional average: Value of arrears 68; Value of collectible 15.4; Value of arrears older than 12 months 78; Number of cases at FY-end as % of cases at start of FY 98 - Aging debts: more than 78 percent are older than 12 months (should not exceed 25 percent). - Uncollectible debts average 84.5 percent. - Tax dispute resolution: - Lack of dedicated and independent objection units; insufficient competent lawyers; poor monitoring of stock and flows of cases. - Time to determine an objection can exceed several months. - Taxpayer service: - Shift to service culture recent and incomplete. - Call center capacity limited; only Barbados and Jamaica have call centers able to provide both generic and specific information. - Processing delays: - Delay for processing VAT refunds generally exceeds 30 days. - Delay for processing objections (when measured) also exceeds 30 days. - Only Jamaica and Trinidad and Tobago launched taxpayer satisfaction surveys; results yet to be published. - Accountability and transparency: - Limited publication of operational performance information. - External oversight mechanisms vary; auditor general often focuses on financial statements rather than operations. - Management boards need strengthening to set expectations, monitor performance, and ensure compliance. ### VAT impacts, productivity, policy gaps, and lessons - VAT revenue impacts and key statistics: - Taxes on goods and services represented "4.9 percent of GDP on average per country before VAT introduction". - VAT represented "7.5 percent of GDP one/two years after VAT introduction". - In the Bahamas, total revenue collection increased by "39 percent" between FY 2013/14 and FY 2015/16. - For the group of countries studied, "VAT represents 31 percent of total tax revenue". - Examples: - Antigua and Barbuda: VAT revenue declined from "6.2 percent of GDP to 4.5 percent" between 2009 and 2011. - St. Vincent and the Grenadines: VAT-to-GDP ratio fell from "8.5 percent in 2008 to 7.6 percent in 2010, and 7.1 percent at the end of 2011". - Guyana: VAT represented "6.1 percent of the GDP in 2008 (one year after its introduction), and 5.4 percent of GDP in 2015". - VAT productivity and VAT gap: - Regional VAT C-efficiency range: "0.36 in St. Lucia to 0.79 in the Bahamas". - Regional average: "0.54". - Comparators: "0.55 in OECD countries, 0.59 in Europe, and 0.64 in Asia and Pacific". - Low productivity indicates base erosion through exemptions, excessive zero-rating, concessional rates, evasion, and weak enforcement. - The policy gap: exemptions, zero-ratings, and incentives (selected verbatim examples): - St. Kitts and Nevis: exemptions for "all supplies of electricity and most construction activities" (electricity effectively zero-rated). - Grenada: fully zero-rating "municipal water supply and textbooks", exempting "bread, fish, poultry, other meats, select medicines, and select 'unprocessed agricultural products'". - St. Lucia: fully zero-rating "water and electricity supplies, processed and unprocessed foodstuffs, and pharmaceutical products". - Barbados: nearly "20 broad categories of goods and services are zero-rated"; legislation allows extensive zero-rating of inputs and final goods, ex post waivers of VAT due, and overly generous refund provisions. - Zero-rated supplies share: - Belize: "44.2 percent of taxable supplies". - Guyana: "52.5 percent of taxable supplies". - Estimated cost of VAT incentives: - Regional study (2013) average cost: "2.6 percent of GDP". - St. Lucia: "4.3 percent of GDP". - Dominica: "3.8 percent of GDP". - Jamaica policy gap analysis (2015): policy gap equivalent to "5–6 percent of GDP"; GCT expenditure "has been between 4–5 percent of GDP". - Tourism-related reduced rates and exemptions: - Reduced VAT rates for hotel accommodations range "from 7.5 to 10 percent". - Examples of bilateral/domestic exemptions to attract FDI in tourism cited. - Filing and payment performance and VAT compliance: - VAT filing rate reached "80 percent one year after its introduction", and currently "ranges between 55 and 62 percent". - Excess VAT credits and refund delays: many cases exceed 90 days; good practice is 30 days. - VAT refunds suspended temporarily in Trinidad and Tobago due to insufficient budget. - Deferment regimes underused except in Jamaica (in place since 1991). - Lessons learned: - VAT has been successful and sustained but has not catalyzed broader tax administration reforms or strengthened direct tax operations. - Scope for substantial gap reduction by curtailing tax expenditures and increasing administration effectiveness. - Bahamian experience: broad-based VAT with minimum exemptions allowed a lower tax rate at 7.5 percent versus 15–17 percent in the rest of the region. - Registration threshold concerns: - Average VAT registration threshold: US$ 55,868. - Almost 80 percent of VAT is collected from the largest 10 percent of taxpayers. - Close to 90 percent of VAT is collected from the top 20 percent of taxpayers. - Taxpayers in the lowest three deciles contribute less than 1 percent of total VAT. - Examples of raised thresholds: Grenada US$ 115,000; St. Lucia US$ 150,000; Barbados US$ 100,000. Dominica and St. Vincent and the Grenadines indicated intentions to raise thresholds (Budget Speech 2017). - Administrative organization: creation of separate units dedicated to VAT administration common in OECS. ### Table 11 — Basic VAT data (selected exact entries) - Antigua and Barbuda: - VAT threshold in US$: 111,111 - VAT standard rates: 15 - Other positive rates: 12.5 - C-efficiency Ratio (mid-2013): 0.52 - Bahamas: - VAT threshold in US$: 100,000 - VAT standard rates: 7.5 - C-efficiency Ratio (mid-2013): 0.80 (In 2016.) - VAT population: 6,710 - Barbados: - VAT threshold in US$: 40,000 (Decision to raise the threshold from US$ 40,000 to US$ 100,000 in 2016.) - VAT standard rates: 17.5 - Other positive rates: 7.5 - C-efficiency Ratio (mid-2013): 0.74 - VAT population: 6,000 - Belize: - VAT threshold in US$: 37,500 - VAT standard rates: 12.5 - VAT population: 4,062 - Grenada: - VAT threshold in US$: 44,444 (Threshold raised from US$ 44,444 to US$ 120,000 in 2015.) - VAT standard rates: 16 - Other positive rates: 10 - C-efficiency Ratio (mid-2013): 0.48 - VAT population: 824 - Guyana: - VAT threshold in US$: 48,263 - VAT standard rates: 16 - C-efficiency Ratio (mid-2013): 0.37 - VAT population: 2,623 - Jamaica: - VAT threshold in US$: 23,810 - VAT standard rates: 16.5 - Other positive rates: 2;5;10;25 - C-efficiency Ratio (mid-2013): 0.47 - VAT population: 14,000 - St. Kitts and Nevis: - VAT threshold in US$: 55,556 - VAT standard rates: 16 - C-efficiency Ratio (mid-2013): 0.67 - St. Lucia: - VAT threshold in US$: 66,667 (Raised from US$ 66,667 to US$ 150,000 in 2015.) - VAT standard rates: 15 - C-efficiency Ratio (mid-2013): 0.36 - VAT population: 1,496 - St. Vincent and the Grenadines: - VAT threshold in US$: 44,444 - VAT standard rates: 15 - Other positive rates: 10 - C-efficiency Ratio (mid-2013): 0.53 - Trinidad and Tobago: - VAT threshold in US$: 54,179 - VAT standard rates: 15 - C-efficiency Ratio (mid-2013): 0.43 - VAT population: 20,000 - Regional average: - VAT threshold in US$: 55,868 - C-efficiency Ratio (mid-2013): 0.54 - Note: The 2017 budget speech proposed amendments in Guyana: standard rate to be reduced from 16 percent to 14 percent, threshold to be raised from 48,263 to 72,394 (US$). ### Next steps — policy and administrative priorities - Tax policy direction: - Better tax policy designs to increase revenues, reduce economic distortions, and promote investment and growth. - Simplify the system and broaden the tax base. - Impose a rules-based regime with minimum ministerial discretion and a uniform low-rate broad-based tax regime. - Revenue administration reforms: - Require more high-level political attention and engagement. - Support reforms with civil service accountability frameworks. - Fully implement structural reforms: establish function-based headquarters and reorganize field offices along taxpayer segments. - Strengthen headquarters to improve human resource and performance management. - Compliance improvement: - Adopt risk management principles to focus scarce resources on immediate compliance risks (VAT credits, nonfilers, turnover underreporting). - Translate strategies into operational plans addressing inaccurate taxpayer registers; weak monitoring/enforcement vis-a-vis nonfiling and tax arrears; insufficient sanction powers; lack of audit selectivity; poor service quality. - Automation and IT: - Urgent need to automate business processes; replace existing IT systems in nine OECS countries and in Belize, Bermuda, Barbados, Suriname, and Turks and Caicos. - Regional initiatives and resource sharing are options for small countries. - Human resources and performance management: - Need dynamic, needs-based HR management and greater flexibility and autonomy in workforce management. - Priority to enhance performance management, maintain reliable datasets, implement strong reporting frameworks, and produce regular performance reports. - Data integrity and public service constraints: - Data integrity issues and public service constraints require attention. ### Conclusions — effectiveness and way forward - VATs have been effective in mobilizing additional tax revenues: - Revenue increases from VATs range from 0.9 percent of GDP to 5.4 percent of the GDP in countries that introduced VAT during 2005–2013. - On average, an increase of 20 percent of VAT productivity for the region would represent an increase of 2.0 percent of VAT revenues in terms of the GDP. - Deviations from initial VAT objectives: - Legislation deviated from being broad-based, single-rate due to zero-rating of domestic supplies, generous exemptions, lower rating of tourism activities, and low registration thresholds. - Recommendations (selected): - Strengthen VAT rather than eliminate it. - Simplify the personal income tax regime to facilitate efficient collection and reporting (e.g., withholding at source). - Coordinate corporate income tax regimes to reduce “race to the bottom” and better protect CARICOM member states against international tax evasion. - Introduce simplified mechanisms (presumptive tax) for small taxpayers. - Transform “stove-pipe” administration into an integrated administration focused on major taxpayer segments and a “whole-of-taxpayer” model of compliance management. - Improve IT support and invest in human capital. - Tools and support: - IMF and partners have made tools available: RA-FIT, TADAT, and RA-GAP. - ISORA, the new version of RA-FIT, is a priority to support performance management. - Country authorities show growing interest in RA-GAP exercises and TADAT assessments. - Regional programs: - Structured regional programs to strengthen IT support, audit capacity, and enforcement have potential to raise tax compliance levels and revenue outcomes. *Source: wp1788.* ### REFERENCES ___________________________________________________________________________________ 46 ### wp1788 - REFERENCES ___________________________________________________________________________________ 46 ### I. Introduction — scope and purpose - Reviews tax administration reforms undertaken by 20 Caribbean countries with IMF Fiscal Affairs Department and CARTAC support since 2001. - Focus: CARICOM member states and associate members: Anguilla, Antigua and Barbuda, the Bahamas, Barbados, Belize, Bermuda, the British Virgin Islands, Cayman Islands, Dominica, Grenada, Guyana, Haiti, Jamaica, Montserrat, St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines, Suriname, Trinidad and Tobago, and Turks and Caicos. - Population and geography: - Total population: 17 million inhabitants. - Haiti population: 10.9 million. - Montserrat population: 5,000. - Surface area: 1,063,000 sq. mi; more than 700 islands. - Purpose: - Describe main drivers and characteristics of tax system and administration reforms. - Determine whether reforms achieved intended outcomes, particularly revenue mobilization. - Assess impact on nonrevenue performance indicators: tax base expansion, tax system simplification, compliance levels, and tax administration effectiveness and efficiency. ### II. Background — fiscal situation and revenue performance - Growth patterns (tourism-based vs. commodity exporters): - Tourism-based economies: growth doubled from 1.1 percent in 2014 to 2.2 percent in 2016. - Commodity exporters: decline for second consecutive year: 0.9 percent in 2015 and 0.6 percent in 2016. - Suriname and Trinidad and Tobago most affected. - Belize and Guyana offset effects: tourism in Belize; oil imports in Guyana. - Table 1: Real GDP growth in selected countries (2013–2016) — notable entries preserved verbatim: - Antigua and Barbuda: 2013 1.5; 2014 4.2; 2015 2.2; 2016 2.0 - Bahamas: 2013 0.0; 2014 -0.5; 2015 -1.7; 2016 0.0 - Barbados: 2013 -0.1; 2014 0.2; 2015 0.9; 2016 1.4 - Belize: 2013 0.7; 2014 4.1; 2015 1.9; 2016 -1.0 - Dominica: 2013 0.8; 2014 4.2; 2015 -1.8; 2016 0.8 - Grenada: 2013 2.4; 2014 7.3; 2015 6.2; 2016 3.1 - Jamaica: 2013 0.2; 2014 0.5; 2015 1.1; 2016 2.2 - St. Kitts and Nevis: 2013 6.2; 2014 6.1; 2015 6.6; 2016 4.7 - St. Lucia: 2013 0.1; 2014 0.5; 2015 1.6; 2016 1.4 - St. Vincent and the Grenadines: 2013 2.5; 2014 0.2; 2015 0.6; 2016 1.8 - Guyana: 2013 5.2; 2014 3.2; 2015 2.6; 2016 3.4 - Suriname: 2013 2.8; 2014 1.8; 2015 0.1; 2016 -2.0 - Trinidad and Tobago: 2013 2.3; 2014 -1.0; 2015 -1.8; 2016 -1.1 - Haiti: 2013 4.2; 2014 2.8; 2015 1.2; 2016 1.5 - Fiscal indicators and vulnerabilities: - Fiscal deficits average around 4 percent of GDP. - Sovereign indebtedness average about 82 percent of GDP in 2014, increased to an average of 85 percent in 2015. - Public debt remains high, particularly in tourism-dependent economies. - Countries remain vulnerable to economic and weather-related shocks; low potential growth, stagnant productivity, high business costs. - Policy priorities suggested in text: - Reduce processing costs at ports and customs. - Continue energy reform to reduce fossil fuel dependence, improve efficiency, reduce costs, and improve business environment. ### III. Trends and challenges in tax administration reforms - Characteristics of tax administrations: - Generally small: eight out of 20 are small or micro administrations with less than 100 staff members. - Persistent problems: organizational inefficiencies, pervasive data integrity issues, out-of-date processes, low capacity, operational ineffectiveness, widening compliance gaps (including for VAT). - Recent reform focus and measures supported by IMF, CARTAC, SEMCAR, Canadian government, IADB: - Establishing/strengthening headquarters to improve strategic planning and supervision. - Reorganizing field operations by type of taxpayer to focus on larger taxpayers. - Building capacity in taxpayer service, audit, collection enforcement, and support service. - Upgrading IT systems to support key operations and improve service delivery. - Reengineering business processes toward automation. - Applying a risk-based approach to manage compliance. - Improving the legal framework to support key operations. - Increasing transparency and accountability. - Enhancing institutional and individual performance management. - Ongoing needs: - Tax policy measures to raise more revenue while modernizing tax administration. ### IV. Modernization of the tax system — main directions and issues - Main tax policy direction: - VAT introduction is the most important reform; shift away from reliance on import duties toward domestic revenue sources. - VAT viewed as instrument to replace inefficient taxes, broaden base, and generate stable revenue. - Other policy reforms in some countries: - Improving income tax regimes by simplifying individual income taxes and broadening CIT bases (Dominica, St. Lucia). - Scaling back generous tax incentives or shifting to rules-based transparent incentive systems (Jamaica, Grenada). - Reducing high/distortive nominal taxes and duty rates. - Modernizing property taxes and their administration. - Tax policy issues requiring closer attention (verbatim items preserved): - “Tax competition, a race to the bottom.” Tax incentives have become pervasive and result in substantial tax expenditures. Recent studies estimate revenue forgone for main taxes (VAT, import duties, excises, and the CIT) at about 4.0 to 6.5 percent of GDP in Antigua and Barbuda, Dominica and St. Kitts and Nevis; above 7 percent of GDP in Grenada, St. Lucia, and St. Vincent and the Grenadines; and nearly 10 percent of GDP in Jamaica. - Complexity of the personal income tax (PIT) system: decades of incremental changes, multiple allowances and deductions, high nonfiling rate (nonfiling rate is above 50 percent in the region). Example: Barbados — 68,000 out of 90,000 PIT taxpayers qualify for refunds. - Lack of small business tax regimes: normal VAT and income tax regimes impose proportionally higher compliance costs on small/micro businesses; only a few countries (e.g., Grenada and St. Lucia) have introduced/planned turnover-based presumptive tax regimes. - Modernization of international tax rules is urgently needed: cross-country business income tax rate variation from 15 percent to 45 percent; absence/weakness of transfer pricing legislation encourages profit shifting by MNEs. - Property tax regimes are dated and inefficient: tax revenue from property taxes averages 0.6 percent of GDP in the region versus 2.1 percent of GDP on average in OECD countries. ### V. Tax administration reforms — governance models and experience - Two main governance models: - Regular tax departments within ministries of finance (majority of countries). - Semiautonomous agencies (SARA/Semiautonomous Revenue Agencies/Authorities) — increasing interest. - Status of semiautonomous agencies: - Only three countries have national semiautonomous agencies: Barbados (BRA), Guyana (GRA), and Jamaica (TAJ). Trinidad and Tobago contemplating; Bahamas initiated creation of a Unified Revenue Agency/Revenue Authority. - In Barbados and Guyana the RA integrates tax and customs administrations; in Jamaica TAJ is a semiautonomous tax agency. - Drivers for semiautonomous RAs (preserved items): - (i) provide more autonomy to manage resources; - (ii) improve effectiveness in managing compliance by enhancing synergies and exchange of information between tax and customs; - (iii) increase efficiency by sharing common services (e.g., budget and HR management, and IT support); - (iv) foster transparency and accountability. - Observed outcomes and limitations: - Creation of semiautonomous agencies was mainly triggered by need to remove HRM impediments and foster public servants’ accountability. - Jamaica used the opportunity to repackage staff remuneration and review technical qualifications and standards. - In Barbados, RA intended to integrate direct and indirect taxes; integration of Customs and Excise Department has been delayed; only excise section integrated so far. - Lack of data demonstrating positive impact on revenue administrations’ efficiency (e.g., reduction of collection costs). - Reform has helped develop a culture of performance, but civil servant accountability has not evolved significantly. - Conclusion: semiautonomous agencies are not a panacea. Without strengthening headquarters functions, shifting to functional approaches, taxpayer segmentation, compliance and performance management, data exchange, and modernizing IT systems, impact on revenue mobilization is limited or absent. In Guyana and Barbados the establishment of RAs distracted from needed reforms. - Table 2: Revenue Administration Institutional Arrangements in the Caribbean — institutional mapping (selected entries preserved verbatim): - Anguilla: Tax Dept. IRD - Antigua and Barbuda: Tax Dept. IRD - Bahamas: Tax Dept. IRD - Barbados: Revenue Authority BRA - Belize: Tax Dept. DGST and ITD - Bermuda: Other OTC - Dominica: Tax Dept. IRD - Grenada: Tax Dept. IRD - Guyana: Revenue Authority GRA - Haiti: Other (DGI) Gen. Directorate - Jamaica: Revenue Authority (TAJ) SARA - Montserrat: Other Informal RA - St. Kitts and Nevis: Tax Dept. IRD - St. Lucia: Tax Dept. IRD - St. Vincent and the Grenadines: Tax Dept. IRD - Suriname: Other DTD, ITD, customs reporting to a director of taxes - Trinidad and Tobago: Tax Dept. IRD - Turks and Caicos: Tax Dept. IRD *Source: REFERENCES, wp1788.* ### Box 1. Main Features of Semiautonomous Agencies in the Caribbean ### Box 1. Main Features of Semiautonomous Agencies in the Caribbean ### Main features of semiautonomous revenue agencies - A legislative instrument (law or decree) has been used to establish each agency. The BRA, GRA, and TAJ have separate legal statuses and boards. - BRA and GRA have integrated tax and customs operations, TAJ has not. - They have the mandate of assessing and collecting taxes and duties, administering and enforcing revenue laws, and providing advice on tax laws to the minister of finance (MOF). - The commissioner general is appointed by the government and fully vested with the powers established in the revenue laws, with the authority to delegate these powers. - They remain directly accountable to the minister of Finance and the government. - They exist outside the regular public service and can recruit, discipline, evaluate, and, in some cases, fire staff. - They are allocated a normal budget and there is no appropriation funding. - The management board (including external members) has specific responsibilities and oversight functions, but is excluded from making the RA’s basic business decisions. - The chair of the board is named by the government. - They are subject to external audits by the auditor general (AG). ### Structural reorganization — main trends and integration - Main Trends in Structural Reorganization: - Most of the tax administrations in the region have undertaken major organizational reforms during the last decade. - The predominant changes include (i) the integration of tax operations across major tax types, (ii) the reorganization of field delivery along segmentation principles, and (iii) the adoption of a functional approach based on core activities, such as registration, returns and payments processing, auditing, etc. - While well engaged in some countries, these reforms have yet to produce the expected outcomes in terms of effectiveness and efficiency. - It is important not to minimize the positive impact of structural reforms on revenue mobilization, even though they require long-term efforts. - Integration: - The integration of consumption and income-based taxes into one administration has accelerated during the last five years. - Out of the 12 countries that currently administer VATs, all, except Belize, have now adopted this integrated approach. *Source: wp1788 - Box 1. Main Features of Semiautonomous Agencies in the Caribbean* ### Box 2. Ongoing Reforms in Selected Organization of Eastern Caribbean States Countries ### Box 2. Ongoing Reforms in Selected Organization of Eastern Caribbean States Countries ### Organizational reforms and integration - Tax administrations in Dominica, Grenada, St. Kitts and Nevis, St. Lucia, and St. Vincent and the Grenadines are relatively small (with less than 120 staff members). - Historically organized by tax type (sales tax, income tax, stamp/property tax), with separate units for taxpayer service, auditing, and enforcement; VAT introduction created additional separate units, increasing duplication and stretching resources. - Reforms undertaken (with CARTAC assistance) over the past four years include: - moving from tax-type to function-based organization; - fully integrating operations for all tax types, particularly VAT operations, into the domestic tax department; - applying segmentation principles to organize field operations (creating a unit to administer large and medium taxpayers, and another for small taxpayers); - creating a design, planning, and monitoring (DPM) unit to provide strategic orientation and oversee field operations. - In small islands (OECS), dedicated subdivisions (large and medium taxpayer sections [LMTSs]) administer large and medium businesses together; in Grenada and St. Lucia LMTSs cover businesses whose turnovers exceed the VAT registration threshold; in Dominica and St. Kitts and Nevis small VAT taxpayers are administered by small taxpayer sections (also responsible for individual PIT taxpayers). - In Belize, domestic taxes are administered by two departments (Income Tax Department and Department of General Sales Tax); Suriname has separate direct and indirect domestic tax departments and a customs department reporting to one director of taxes—these approaches lead to duplication (dual registration systems, double databases), inefficiencies, and higher compliance burdens for taxpayers. ### Segmentation, LTO/LMTO design, and impact on revenue - Empirical findings on concentration: - a very small proportion of taxpayers (often less than 10 percent, sometimes just a few percent) account for 70–80 percent of revenues. - recent regional studies on VAT indicate that 95–97 percent of the VAT is paid by large and medium taxpayers. - Large taxpayer units (LTUs) established in larger islands to administer businesses whose turnover exceeds US$ 1 million. - Jamaica has a dedicated unit within the LTU to monitor high net-worth individuals (HNWIs). - Examples of LMTO/LTO impact on revenue: - Jamaica: tax-to-GDP ratio rose from 23.9 percent in FY 2010 to 24.9 percent in FY 2016 (+1 percent of GDP); increase cannot be attributed solely to the LTO but may reflect a positive contribution. - Dominica: LMTO began operating in 2013; total revenue increased by 5.9 percent between 2012 and 2014. - St. Kitts and Nevis: revenue collection from large taxpayers increased by 16.8 percent between 2013 (year of LMTO inception) and 2015. - Haiti: tax-to-GDP ratio was just above 8 percent in 1996 (year of LTO establishment) and is expected to reach 14.7 percent during FY 2016 (+6.7 percent of GDP); increase may be associated with improved large taxpayer compliance capacity, though GDP effects from the 2010 earthquake complicate attribution. - Factors limiting revenue gains from LTO/LMTO in the Caribbean: - post-financial crisis negative impact on large taxpayers’ turnovers and profitability; - tax incentives and allowances disproportionately benefit largest taxpayers, generating substantial revenue losses (several points of GDP in recent studies such as Jamaica and the ECCU); - ongoing integration challenges: direct and indirect taxes continue to be administered in silos with noncommunicant IT systems; significant gap between VAT and CIT performance—CIT filing and payment rates are still below 50–60 percent compared to 80–90 percent for VAT; - limited management of international transactions (transfer pricing and thin capitalization), with missing legislation in some countries; - intensified audit efforts have produced considerable accumulation of tax arrears across the region over the last decade; - frequent tax amnesties have created a “wait and see” attitude and harmed tax payment compliance. ### Modernization of the legal framework - Tax procedures are dispersed across different and often out-of-date laws (income tax, property tax, property transfer tax acts) and VAT acts. - Common legislative weaknesses (except VAT law which generally empowers administrations): - limited access to third party information; - insufficient power to serve liens, seize assets, enforce garnishment, and engage third party director’s liability; - inconsistencies in application of interests, penalties, and sanctions across legislations; - lack of provisions to write off uncollectible debts; - absence of broad anti-avoidance provisions to disregard artificial or mischaracterized transactions or to adjust related-party transactions to market prices. - Tax administrations lack clear guidance/mandates on law interpretation; taxpayers often lack procedural safeguards (right to information), public and advance rulings, and clear time-limit requirements. - Trend toward integrating procedures into a single document (Tax Administration Procedure Act (TAPA) or Tax Procedure Bill); CARTAC and IMF Legal Department assisted Antigua and Barbuda, Haiti, and Grenada to develop TAPAs (not all enacted at the date of the note). CARTAC developed a model TAPA incorporating international good practices. ### Strategic management, risk, and compliance - CARTAC and SEMCAR assisted multiple countries in designing multiyear corporate strategic business plans (CSBPs) articulating mission, vision, values, and key strategic objectives; common plan features: - customer-oriented approach to encourage compliance; - introduction of risk management principles to improve enforcement effectiveness; - strong focus on human resource and performance management. - Implementation gaps: - strategies often not translated into operational plans; low levels of implementation; - reform management often insulated from operations, with limited oversight and communication and little staff or mid-level ownership. - Tax Administration Jamaica created a modernization office in September 2014 as a notable exception. - Risk management status: - concept understood but application immature—fragmented, insufficiently planned and documented, largely confined to audit case selection; - audit programs do not necessarily target highest-risk taxpayers; - techniques to identify, assess, and rank risks are mostly intuitive, relying on rudimentary analyses of insufficient data; - data integrity and IT issues pervasive (all ECCU members, Belize, Barbados); - intelligence activities embryonic; only Guyana and Jamaica have systematic data exchange with customs, none with social security or other agencies (except one-off data matches in Antigua and Barbuda, Haiti, St. Vincent and the Grenadines, and St. Lucia). - Barbados and Jamaica have begun structured institutional risk management; Barbados established a central risk management unit integrated with strategic planning. - Compliance management challenges: - fragmentation: enforcement (audit) prioritized over taxpayer service, education, and assistance; - audit programs poorly articulated with upstream activities (account management, intelligence, risk management), enforcement (debt management), and appeals; - legacy tax-type structures and IT systems create silos and staff specialization; - VAT has attracted most attention and resources at expense of CIT, PIT, PAYE—important compliance gaps persist in CIT, PIT, PAYE; - compliance management is more intuitive than fact-based; limited compliance gap studies—Jamaica is only country with a completed compliance gap analysis and mitigation strategy (with FAD assistance); CARTAC supported ongoing work in Barbados, St. Lucia, and Grenada; - no country has measured the impact of compliance programs on taxpayer behavior. ### Performance and individual management - Institutional performance measurement is weak: - many countries identified key performance indicators and service standards but lack capacity to monitor them regularly (monthly or quarterly); - deficiencies include poor reporting frameworks, limited managerial experience/appetite for performance management, inadequate IT systems and data integrity issues, and absence of taxpayer surveys to measure service standards. - IMF performance management tool RA-FIT exists to gather revenue administration data and establish baselines, but utilization remains limited. - Individual performance management is nascent and characterized by: - limited goal setting, weak feedback, insufficient communications and collaborative work between managers and employees, and absence of performance implementation plans; - supervisors lack capacity to engage and develop employees; - individual and institutional performance not properly linked; most employees unaware of organizational goals. ### Human resources and staffing constraints - HRM challenges amid modernization: integrating HRM with strategic objectives; identifying required functions, positions, roles, and capabilities; acquiring, developing, motivating, and retaining talent; linking individual performance to organizational goals and tracking results. - Existing public service rules are rigid and ineffective relative to modernization needs; public service commissions (PSCs) constrain recruitment, discipline, and removal flexibilities. - Responses and consequences: - Guyana, Barbados, and Jamaica established semiautonomous agencies to obtain greater autonomy over staffing. - Traditional departments increased use of term contracts to fill shortages; contractual employees in some cases represent more than 20 percent of the workforce, many without training, and many contracts intended as short-term persist for years. - Less radical reforms could delegate HRM powers to public managers, requiring changes in PSC roles. - Tax administrations need to strengthen HQ HR units to design internal policies, develop HR tools, and apply modern HR management principles; CARTAC has begun technical assistance in this area (in Jamaica). - Staffing issues: - workforce size depends on country-specific factors (organizational models, revenue types, legislation complexity, territory and population size, automation level); - some administrations lack critical mass of staff; most lack competent staff or have inefficient allocation—significant shares of staff perform low value-added tasks (data capture, cashiering, account management) while compliance, audit, and collection enforcement are understaffed. *Source: Box 2. Ongoing Reforms in Selected Organization of Eastern Caribbean States Countries (IMF working paper).* ### Box 3. Main Weaknesses of Human Resource Management in Public Service ### Box 3. Main Weaknesses of Human Resource Management in Public Service ### Main weaknesses (boxed list) - No clear delineation between HR policy, operations, and oversight responsibilities. The PSC performs all three functions. - Lack of a strategic approach (inconsistency of recruitments, succession insufficiently planned). - Lack of coordination and fragmentation (incapacity to promote uniformity, no policy guidelines). - Rigid and centralized (insufficient involvement of relevant stakeholders). - Lack of performance orientation. *Note: Prime Minister Gonsalves highlighted 20 weaknesses of public service in the conference held in St. Vincent and the Grenadines in June 2008.* ### Workforce by country (situation in 2013) — selected country staffing and population/staff ratios - Anguilla: Autonomy N, Staff 20, Number of citizens 15,094, Population/staff ratio 754 - Antigua and Barbuda: Autonomy N, Staff 126, Number of citizens 89,985, Population/staff ratio 714 - Bahamas: Autonomy N, Staff 148, Number of citizens 377,374, Population/staff ratio 2,549 - Barbados: Autonomy Y, Staff 357, Number of citizens 284,644, Population/staff ratio 797 - Belize: Autonomy N, Staff 213, Number of citizens 331,900, Population/staff ratio 1,558 - Bermuda: Autonomy N, Staff 25, Number of citizens 65,024, Population/staff ratio 2600 - Dominica: Autonomy N, Staff 80, Number of citizens 72,003, Population/staff ratio 900 - Grenada: Autonomy N, Staff 98, Number of citizens 108,580, Population/staff ratio 1,107 - Guyana: Autonomy Y, Staff 1100, Number of citizens 799,643, Population/staff ratio 726 - Haiti: Autonomy N, Staff 1200, Number of citizens 10,320,000, Population/staff ratio 8,600 - Jamaica: Autonomy Y, Staff 2261, Number of citizens 2,715,000, Population/staff ratio 1,200 - Montserrat: Autonomy N, Staff 17, Number of citizens 4,900, Population/staff ratio 288 - St. Kitts and Nevis: Autonomy N, Staff 156, Number of citizens 54,191, Population/staff ratio 347 - St. Lucia: Autonomy N, Staff 159, Number of citizens 182,273, Population/staff ratio 1,146 - St. Vincent and the Grenadines: Autonomy N, Staff 129, Number of citizens 109,373, Population/staff ratio 847 - Suriname: Autonomy N, Staff 800, Number of citizens 539,276, Population/staff ratio 674 - Trinidad and Tobago: Autonomy N, Staff 1200, Number of citizens 1,300,000, Population/staff ratio 1,083 - Turks and Caicos: Autonomy N, Staff 25, Number of citizens 33,098, Population/staff ratio 1,323 (Reference note in source: A single staff member “covers” about 2,200 citizens.) ### Training — findings and shortcomings - Responsibility: Except in countries with semiautonomous models, training tax officials is left to the human resource department (or central training department) with oversight by the PSC. - Quality and alignment: - Training is generally poorly planned and insufficiently resourced. - Training is not designed to support the specific needs of reforming the tax administration, nor to accommodate the changing role of the workforce. - Staff generally lack technical skills and competency; first level supervisors, team leaders, and mid-level managers lack leadership and management skills. - Lack of induction training is common. Only the Jamaican tax administration (TAJ) has a structured and permanent induction training program, but it is only available to tax auditors. - Isolated initiatives: Barbados and Guyana have isolated initiatives (e.g., a joint venture between BRA and the West Indies University) to train mid-level managers. - Delivery and donor dependence: - Most training delivered is by private consultants, or financed by donors and executed by international organizations (including CARTAC, SEMCAR, and IADB). - Shortcomings of this approach: - It is demand driven and not always aligned with medium-term strategies. - It provides for limited follow up and evaluation (cost/effectiveness, no skills rating gap). - The correlation between training and job functions/qualifications is limited. - Sometimes suffers from limited ownership by, or involvement of, the authorities. - The transfer of know-how is limited. ### Budget — findings and prerequisites for improvement - Use of resources is far from optimal due to organizational inefficiencies, weak risk management, and limited use of information technology. - Lack of resources/budget management capacity is a dominant factor in most tax administrations. - Budget planning is generally isolated from strategic planning; resource management is disconnected from performance management. - Few administrations (e.g., Haiti) have appointed budget specialists with costing/financial analysis experience. - Most administrations lack information on annual and multiyear funding needs (salaries, operational and capital investments) and lack instruments/models (cost/effectiveness, return on investment) to support business cases to the MOF. - Budget determination is often ad hoc and consists of a mechanical extension of numbers from one fiscal year to another. - Consequence: budget constraints and weak financial management capacity undermine strategic and operational objectives. - Prerequisites for improving engagement with the MOF regarding resource allocation and budgeting: - (i) addressing the capacity gap, - (ii) implementing financial policies with review and audit mechanisms, - (iii) improving performance management to link resources and outcomes. ### IT systems and automation — system status and process efficiency - IT systems — country situations: - Seven OECS countries (Anguilla, Antigua and Barbuda, Dominica, Grenada, St. Kitts and Nevis, St. Lucia, and St. Vincent and the Grenadines), plus Belize, use a Caribbean version of SIGTAS developed during the 1990s, which no longer supports tax administration operations. - Guyana: GRA uses TRIP, a tax and customs application that does not seem to fit integrated tax and customs operations. - Barbados: BRA is trying to merge two systems, VITAS and ITAX. - 2009 CARTAC evaluation: “SIGTAS is not a strategic future component for the tax business and its replacement is urgent.” Identified issues include data integrity problems, missing critically needed information (on-time filing data, consolidated taxpayer arrears, basic performance management information), lack of accounting functionality, aggregation errors, and country-specific code modifications that complicate upgrades and increase maintenance costs. - Regional IT solution recommended for small countries with limited financial capacities. - Three countries recently purchased new systems: Jamaica, the Bahamas, and Haiti. GENTAX being installed in Jamaica (used by Trinidad and Tobago); Bahamas and Haiti rolling out DATA TORQUE. DATA TORQUE has contributed to the success of VAT introduction in the Bahamas. - Automation of processes and operational efficiency: - Collection costs (gross revenue/aggregate expenditures) in the region are high by international comparison (in some cases, ten times those recorded in OECD countries). - Major factors: difficulty of achieving economies of scale in small organizations, complexity of processes, low level of automation. - Bulk of taxpayer transactions remain paper based; front office functions (data capture, return checks, filing/payment reconciliations) consume significant resources at the expense of audit and collection enforcement. - E-procedures progress: legal and technical issues mostly addressed; network of commercial banks expanded; electronic filing and payment facilities available for all core taxes. Uptake is very low: - Jamaica e-filing rates: 16 percent for VAT and CIT, 14 percent for PAYE, and 1 percent for PIT; e-payment (in value) is less than 6 percent. - Barbados e-filing remains below 30 percent for income tax. - Causes of low uptake: insufficient publicity/advertising efforts, faulty strategic direction, prioritization of large businesses for e-procedures. - Jamaica introduced legal changes to make e-filing and e-payment mandatory, at least for large taxpayers. - Complexity of tax systems hampers automation (e.g., withholding PIT at source as a final tax is hampered by multiple deductions and allowances, and limited access to third party information). Small taxpayers often face monthly/quarterly filing obligations where annual returns would suffice, increasing compliance burden. ### Operational management — registration databases, filing, audit, collections, disputes, taxpayer service - Maintenance of the registration database: - Most Caribbean countries (except Bermuda, Trinidad and Tobago, and St. Vincent and the Grenadines) have established unique Taxpayer Identification Numbers (TINs) and assigned registration responsibilities to tax administrations. - Many taxpayer registers lack reliability and accuracy; only a few administrations provide single and national views of taxpayers. - Taxpayer registers often contain large percentages of inactive/dormant accounts; procedures to close ceased/terminated taxpayer accounts are often missing; routine/systematic analyses to detect duplicates or irregular registrations are largely absent. - Consequence: effective monitoring of taxpayers’ obligations is hampered; filing rates are biased because the denominator “number of expected returns” is generally overstated. - Initiatives to identify unregistered activities are limited despite informality: hidden (cash) economy in the Caribbean ranges between 23 and 65 percent of GDP, with a median of 38.8 percent (based on Schneider (2014)). - Few countries have systematic exchanges of information between government agencies using the TIN or cross-matching with third party data (Jamaica). Haiti launched a door-to-door census since 2013 with limited results. - Percentage of inactive taxpayers (Table 5) - Barbados: Inactive VAT payers as a percent of total 16; Inactive CIT payers as a percent of total 48; Inactive PAYE payers as a percent of total 42; Inactive PIT payers as a percent of total 44 - Belize: Inactive VAT payers as a percent of total 15; Inactive CIT payers as a percent of total 80 - Grenada: Inactive VAT payers as a percent of total 21.1 - Jamaica: Inactive VAT payers as a percent of total 49.7; Inactive CIT payers as a percent of total 37.8 - St. Lucia: Inactive VAT payers as a percent of total 9.40; Inactive CIT payers as a percent of total 11.40 - St. Vincent and the Grenadines: Inactive VAT payers as a percent of total 8.6; Inactive CIT payers as a percent of total 4.3; Inactive PAYE payers as a percent of total 38.1; Inactive PIT payers as a percent of total 0.1 - Average: Inactive VAT payers as a percent of total 20; Inactive CIT payers as a percent of total 45 - Monitoring filing obligations — on-time filing context and country on-time filing rates (Table 6) - Observations: - On-time filing rates across all taxes are generally below international standards. TADAT- POA 4 refers to an on-time filing rate of 90% as a good practice; RA-FIT’s first round indicates the international standard is below 70%. - Performance is strongly affected by low-quality taxpayer registers and large numbers of ceased/terminated taxpayers not deregistered. - A large gap exists between VAT filing rates and those of PIT, CIT, and PAYE; VAT penalties are often more dissuasive and easier to apply. - In Barbados, Grenada, St. Lucia, St. Kitts and Nevis, and St Vincent, low filing rates are explained by: (1) registration thresholds for VAT and corporate income tax “standard” regime being too low, resulting in taxpayer numbers exceeding administrative capacity; (2) a large proportion of small and micro-businesses subject to standard monthly/quarterly filing obligations with which they cannot comply. - Responses: Grenada and St. Lucia introduced presumptive taxes for small businesses and increased VAT registration thresholds; Dominica signaled intention to follow; Barbados VAT threshold will increase but no small taxpayer regime indicated. - On-time filing rates (on average) from Table 6: - Bahamas: VAT/GST 75% - Barbados: VAT/GST 45%, CIT 55 %, PIT 90% - Belize: CIT 68%, PAYE 57% - Bermuda: VAT/GST 81 - Dominica: VAT/GST 80%, CIT 65%, PAYE 60% - Grenada: VAT/GST 81%, CIT 24%, PAYE 45%, PIT 30% - Guyana: VAT/GST 43% - Haiti: VAT/GST 70% - Jamaica: VAT/GST 65%, CIT 69%, PAYE 60%, PIT 67% - St. Kitts and Nevis: VAT/GST 68%, CIT 50% - St. Lucia: VAT/GST 65%, CIT 10%, PAYE 42% - St. Vincent and the Grenadines: VAT/GST 12.4%, CIT 8.8%, PAYE 28.8%, PIT 10.1% - Regional average: VAT/GST 62%, CIT 43.7%, PAYE 48.8%, PIT 49% - Audit effectiveness — findings - Audit effectiveness is mediocre despite extensive training; productivity is low in number of cases completed and additional revenue yields; limited impact on taxpayer behavior. - Contributing factors: - Audit structures remain operationally oriented with insufficient attention to audit management; central audit units responsible for policy, procedures, plans, and monitoring are a relatively recent development and still lacking in some countries (e.g., Barbados). - Noncompliance risks are insufficiently targeted; audit case selectivity is poor due to embryonic intelligence activities and limited use of third party information. - High proportion of resources devoted to systematic audits (often desk audits) of CIT, PIT returns, and VAT refunds irrespective of risk. - Audit programs focus more on large taxpayers but often neglect immediate risks such as nonfiling. - Audit coverage is low; annual audit plans are not particularly ambitious and rarely fully implemented; preference for comprehensive audits over issue-oriented audits in a proportion of three to one. - “Comprehensive audit” often covers a statutory period of four to seven years; only a few administrations can undertake genuine comprehensive audits across VAT, CIT, and PAYE. - Lack of integration of direct and indirect taxes; audit teams specialized by tax type; coordination with customs and social security administrations is nonexistent. - VAT auditing has attracted most training; shortage of auditors competent across all taxes and complex corporate income tax issues. - Audit quality concerns: significant proportion of audit assessments are disputed and discharged (example: Jamaica and Trinidad with audit assessment objections at 70 to 90 percent rates). Collection rates of additional assessments resulting from audits are also very low. - Collection enforcement — arrears, age, collectibility (Table 7) - Observations: - Value of accumulated tax arrears compared to total tax collected is generally high by international standards (ratio should not exceed 10 percent on a three-year average). - On average, the stock of tax arrears exceeds 68 percent of annual tax collection. - Specific country examples where stock of arrears exceeds annual collection: - St. Lucia: 176.6 percent - Jamaica: 131 percent - Antigua and Barbuda: 118.3 percent - St. Vincent and the Grenadines: 113 percent - The stock of arrears consists of a high proportion of aging debts: more than 78 percent are older than 12 months (this should not exceed 25 percent of the value of all tax arrears). - Uncollectible debts average 84.5 percent. - In countries where arrears exceed annual collection, a limited percentage is ultimately collectible. - Causes: financial crisis effects, weak debt management, absence of write-off mechanisms, weak compliance monitoring, weak political support for collection enforcement, political interference, and damaging policy decisions such as periodic amnesties. - Situation of tax arrears (Table 7 entries): - Anguilla: Value of arrears in percentage of total tax collection 50; Value of collectible in percentage of total tax collection 26; Value of arrears older than 12 months in percentage of total arrears 88 - Antigua and Barbuda: Value of arrears in percentage of total tax collection 118.3; Number of cases at FY-end in percentage of cases at start of FY 124 - Barbados: Value of arrears in percentage of total tax collection 36; Value of arrears older than 12 months in percentage of total arrears 86; Number of cases at FY-end in percentage of cases at start of FY 108 - Belize: Value of arrears in percentage of total tax collection 39.8; Value of collectible in percentage of total tax collection 23; Value of arrears older than 12 months in percentage of total arrears 95; Number of cases at FY-end in percentage of cases at start of FY 95 - Bermuda: Value of arrears in percentage of total tax collection 38; Value of collectible in percentage of total tax collection 20; Value of arrears older than 12 months in percentage of total arrears 90; Number of cases at FY-end in percentage of cases at start of FY 107 - BVI: Value of arrears in percentage of total tax collection 69.8 - Dominica: Value of arrears in percentage of total tax collection 59.5; Value of arrears older than 12 months in percentage of total arrears 3; Number of cases at FY-end in percentage of cases at start of FY 104 - Grenada: Value of arrears in percentage of total tax collection 38.6; Number of cases at FY-end in percentage of cases at start of FY 99 - Jamaica: Value of arrears in percentage of total tax collection 131; Value of collectible in percentage of total tax collection 6; Value of arrears older than 12 months in percentage of total arrears 96.5; Number of cases at FY-end in percentage of cases at start of FY 114 - Montserrat: Value of arrears in percentage of total tax collection 56.1 - St. Kitts and Nevis: Value of arrears in percentage of total tax collection 39; Number of cases at FY-end in percentage of cases at start of FY 33 - St. Lucia: Value of arrears in percentage of total tax collection 176.6; Value of arrears older than 12 months in percentage of total arrears 93 - St. Vincent and the Grenadines: Value of arrears in percentage of total tax collection 113; Number of cases at FY-end in percentage of cases at start of FY 100 - Trinidad and Tobago: Value of arrears in percentage of total tax collection 10.9; Value of collectible in percentage of total tax collection 2 - Turks and Caicos: Value of arrears in percentage of total tax collection 50 - Regional average: Value of arrears in percentage of total tax collection 68; Value of collectible in percentage of total tax collection 15.4; Value of arrears older than 12 months in percentage of total arrears 78; Number of cases at FY-end in percentage of cases at start of FY 98 - Tax dispute resolution — findings - Situation varies across the region; in some countries audit activities generate increasing volumes of disputes, in others disputes are negligible. - Common features: - Lack of a dedicated and independent objection unit within headquarters. - Insufficient number of competent lawyers. - Overall dispute resolution process is poorly monitored: - Data on the stock and flows of cases (number of objections and appeals at the end of each fiscal year and their values in percentage of total collection) are generally missing. - No systematic measure of the time taken to determine an objection; studies show this can easily exceed several months. - Root causes for disputes are not clear; low numbers of disputes may reflect taxpayer disaffection due to incapacity of tax administration to resolve cases within acceptable periods or provide information on the dispute process. - Outcomes of dispute resolutions are rarely analyzed; few examples of mass litigation or major court decisions leading to legislative or administrative changes. - Dispute resolution is not fully integrated into multiyear compliance strategies. A few countries (including Jamaica, St. Lucia, Grenada, and Barbados) are designing and implementing dispute minimization strategies (enhanced public and advance rulings), but initiatives remain few. - Taxpayer service — findings - Concept well understood but uneven application across countries; shift from culture of control to service is recent and incomplete. - Strategic plans link voluntary compliance and service delivery, but many countries lag. - Tax administrations increased generic information on websites (many require upgrading/updating) but remain reliant on face-to-face contact and written correspondence. - In-bound calls predominate; investment in telephone infrastructure limited; a few countries developed voice recognition systems; only Barbados and Jamaica have call centers able to provide both generic and specific information. - Administrations monitor number of calls but have not begun identifying topics and root causes behind demands. - Most transactions (registration, filing, payment) remain manual; low penetration of e-procedures reflects initial design weaknesses and need for simplification. - Self-service functionalities are limited. - Service standards introduction/publication is recent; only a limited number of standards monitored regularly by a limited number of countries; none has published performance results in this area. - Performance shortfalls: - Delay for processing VAT refunds generally exceeds 30 days due to insufficient treasury funds. - Delay for processing objections (when measured) also exceeds 30 days. - Noticeable progress: reduced delay in issuing a TIN or responding to an inquiry, where international standards are generally met. - Only two tax administrations (Jamaica and Trinidad and Tobago) have launched taxpayer satisfaction surveys; results yet to be published. ### Accountability and transparency — findings - Limited publication of operational performance information despite strategic planning efforts. - Causes: lack of strong head offices, weak performance management frameworks, poor data integrity and IT support. - External oversight: - Most countries have independent external oversight mechanisms (auditor general or audit committee), but frequency, scope, and quality of reviews differ. - Auditor general often concentrates on financial statements with limited oversight of tax administration operations and performance. - External audits are not undertaken once a year consistently; reports are not systematically circulated within tax administrations or published. - Limited publication of staff integrity issues; absence of publication does not necessarily imply absence of investigation or sanctions. - Management boards (in Barbados, Guyana, and Jamaican SARA) need strengthening to: - (i) set expectations and approve corporate plans; - (ii) ensure reporting mechanisms exist to monitor performance against targets, set service standards, and validate financial statements; - (iii) establish policies on HR, financial management, and enterprise risk management; - (iv) ensure the RA achieves desired results while complying with statutory requirements. - Internal control mechanisms exist in Barbados, Jamaica, and Trinidad and Tobago with specialized internal audit units and annual internal audit programs; Jamaica noted for good level of assurance by internal controls and external oversight. However, board follow-up on internal audit findings is weak in some cases (e.g., Barbados). ### Collaboration with the private sector — findings and Doing Business ranking impacts - Limited feedback mechanisms to measure quality of relationship between private sector and taxpayer community. - Low voluntary compliance indicates lack of confidence in tax system and administration. - Day-to-day practice remains more confrontational than partnership-focused. - Taxpayer service initiatives limited; systems/processes not user friendly; major sources of tension include long delays in processing VAT refunds and objections. - Doing Business — Paying Taxes rankings (2015–16) show deterioration for many countries (Table 8): - Antigua and Barbuda: 2015 159, 2016 161 - Bahamas: 2015 31, 2016 24 - Barbados: 2015 92, 2016 99 - Belize: 2015 61, 2016 69 - Dominica: 2015 95, 2016 98 - Grenada: 2015 106, 2016 132 - Guyana: 2015 115, 2016 117 - Haiti: 2015 142, 2016 143 - Jamaica: 2015 147, 2016 146 - St. Kitts and Nevis: 2015 137, 2016 147 - St. Lucia: 2015 69, 2016 83 - St. Vincent and the Grenadines: 2015 93, 2016 97 - Suriname: 2015 71, 2016 75 - Trinidad and Tobago: 2015 113, 2016 114 - Montserrat and Turks and Caicos: not listed in one of the years - Consultations with private sectors remain limited; tax administrations rarely act on sector views or suggestions; intermediaries’ involvement is insufficient to produce sustainable compliance effects. *Source: wp1788 - Box 3. Main Weaknesses of Human Resource Management in Public Service* ### 5.4 percent of the GDP in the countries studied, except in Grenada (where total revenue ### wp1788 - 5.4 percent of the GDP in the countries studied, except in Grenada (where total revenue ### VAT revenue impacts and key statistics - Taxes on goods and services represented "4.9 percent of GDP on average per country before VAT introduction". - VAT represented "7.5 percent of GDP one/two years after VAT introduction". - In the Bahamas, total revenue collection increased by "39 percent" between FY 2013/14 (prior to VAT introduction) and FY 2015/16 (after one full year of VAT operations). - For the group of countries studied, "VAT represents 31 percent of total tax revenue". - Examples of VAT-to-GDP changes: - Antigua and Barbuda: VAT revenue declined from "6.2 percent of GDP to 4.5 percent" between 2009 and 2011. - St. Vincent and the Grenadines: VAT-to-GDP ratio fell from "8.5 percent in 2008 to 7.6 percent in 2010, and 7.1 percent at the end of 2011". - Guyana: VAT represented "6.1 percent of the GDP in 2008 (one year after its introduction), and 5.4 percent of GDP in 2015". ### VAT productivity and the VAT gap - Regional VAT C-efficiency (actual VAT collection / potential VAT) statistics: - Range: "0.36 in St. Lucia to 0.79 in the Bahamas". - Regional average: "0.54". - Comparators: "0.55 in OECD countries, 0.59 in Europe, and 0.64 in Asia and Pacific". - A low productivity ratio indicates base erosion through exemptions, excessive zero-rating, concessional rates, evasion, and weak enforcement. - The difference between potential and actual VAT collections is the "VAT gap", reflecting weaknesses in tax design and compliance. ### The policy gap: exemptions, zero-ratings, and incentives - Initial VAT designs intended broad bases with limited exemptions and zero-ratings, but scopes expanded post-legislation, reducing VAT potential. - Country-specific policy changes cited: - St. Kitts and Nevis: exemptions for "all supplies of electricity and most construction activities" (electricity effectively zero-rated). - Grenada: fully zero-rating "municipal water supply and textbooks", exempting "bread, fish, poultry, other meats, select medicines, and select 'unprocessed agricultural products'". - St. Lucia: fully zero-rating "water and electricity supplies, processed and unprocessed foodstuffs, and pharmaceutical products". - Barbados: nearly "20 broad categories of goods and services are zero-rated"; legislation allows extensive zero-rating of inputs and final goods, ex post waivers of VAT due, and overly generous refund provisions. - Zero-rated supplies share: - Belize: zero-rated supplies account for "44.2 percent of taxable supplies". - Guyana: zero-rated supplies account for "52.5 percent of taxable supplies". - Estimated cost of VAT incentives (country/regional studies): - Regional study (2013) average cost: "2.6 percent of GDP". - St. Lucia: "4.3 percent of GDP". - Dominica: "3.8 percent of GDP". - Jamaica policy gap analysis (2015): policy gap equivalent to "5–6 percent of GDP"; General Consumption Tax (GCT) expenditure "has been between 4–5 percent of GDP". - Tourism-related reduced rates and exemptions: - Reduced VAT rates for hotel accommodations range "from 7.5 to 10 percent" across many countries. - Reduced rates expanded to restaurant food and beverage and tourism activities in several jurisdictions. - Bilateral agreements and domestic laws grant VAT exemptions/zero-rating to attract FDI and boost competitiveness in tourism (examples: St. Kitts and Nevis agreements allow nonremittance of "70 percent of the VAT charged on supplies of accommodation" and zero-rating of food and beverage supplies; Barbados zero-rates goods imported under the Tourism Development Act). ### The compliance gap and administration issues - Filing and payment performance: - VAT filing rate reached "80 percent one year after its introduction", and currently "ranges between 55 and 62 percent". - Evidence of weakened compliance management since VAT introduction: - Accumulation of VAT credits and increased number of taxpayers reporting nil returns, partially due to tax policy and inaccuracy of taxpayer registers, and symptomatic of insufficient audit coverage. - Accumulation of VAT arrears driven by increased VAT-related audit activities combined with weak collection enforcement. - Consequence: widening compliance gap has led to deterioration of VAT performance in multiple countries. *Source: IMF/CARTAC; IMF.* ### introduction ### wp1788 - introduction ### Current VAT arrears (percent of gross VAT) - Antigua and Barbuda: 55-60; 40 (*); - ; - - Bahamas: - ; 72; - ; - - Barbados: - ; 45; - ; 57 - Belize: 85; 60; 5.7; - - Dominica: 80; 80; 1.5; 10 - Grenada: - ; 81; 3.7; - - Guyana: 60; 72; 2; - - Jamaica: - ; 65; - ; - - St. Kitts and Nevis: 76; 68; 1; - - St. Lucia: 73; 65; 2; 6.5 - St. Vincent and the Grenadines: 76; 12.4; 8.9; - - Trinidad and Tobago: - ; - ; - ; - - (*) dropped to 26% in 2010. ### Lessons Learned from Value-Added Tax Introduction - VAT has been a successful and sustained reform initiative but has not been strong enough to catalyze broader tax administration reforms or integrate into mainstream operations; it has not strengthened direct tax operations. - Success largely attributable to improved compliance management and development of a taxpaying culture; discipline has not been extended to other taxes, leaving a significant gap between VAT and income tax compliance (in the absence of GAP measures for income taxes). - VAT remains a strong and stable revenue source but requires structural improvements to be simple, nondistortive, and revenue-efficient. - Scope for substantial gap reduction by curtailing tax expenditures (restricting domestic zero-rating, exemptions, and differentiated rates) and increasing revenue administration effectiveness. - Bahamian experience: introducing a broad-based VAT with minimum exemptions allowed application of a lower tax rate at 7.5 percent compared to 15–17 percent in the rest of the region. - Registration threshold concerns: - Average VAT registration threshold: US$ 55,868 (regional average). - Almost 80 percent of VAT is collected from the largest 10 percent of taxpayers. - Close to 90 percent of VAT is collected from the top 20 percent of taxpayers. - Taxpayers in the lowest three deciles (30 percent of all taxpayers) contribute less than 1 percent of total VAT. - Conclusion: low registration thresholds impose high collection costs for modest collections; choice of threshold should reflect administrative capacity. - Examples of raised thresholds: Grenada US$ 115,000; St. Lucia US$ 150,000; Barbados US$ 100,000. Dominica and St. Vincent and the Grenadines indicated intentions to raise thresholds (Budget Speech 2017). - Excess VAT credits and refund delays: - Expansion of zero-rated domestic supplies has built large VAT credit volumes, increasing refund claims and pressure to reimburse within acceptable periods (good practice is 30 days). - Many cases exceed 90 days; sometimes not monitored at all. - Trinidad and Tobago: VAT refunds temporarily suspended due to an insufficient budget. - Refund delays and cash flow issues are primary reasons for granting VAT exemptions to investors. - Deferment regimes as alternatives to exemptions: - Useful for importers of capital goods, raw materials, consumables, intermediate goods, or spare parts. - System is insufficiently used in the region except in Jamaica (in place since 1991 and recently streamlined). - Policy debates: - “VAT or no VAT” debates reflect concerns about VAT relevance to small islands; examples: Bermuda decided not to introduce VAT but to tax goods at point of entry and apply a broad-based tax on domestic services; Aruba implemented similar model; Anguilla contemplating it. - The issue is poor VAT design and weak administration, not VAT per se. - Administrative organization: - A particular feature in Caribbean VAT introduction (principally in OECS) has been creation of separate units dedicated to VAT administration. ### Table 11 — Basic Value-Added Tax Data Per Country (selected exact entries) - Antigua and Barbuda: - VAT threshold in US$: 111,111 - VAT standard rates: 15 - Other positive rates: 12.5 - C-efficiency Ratio (mid-2013): 0.52 - VAT population: - - Bahamas: - VAT threshold in US$: 100,000 - VAT standard rates: 7.5 - Other positive rates: - - C-efficiency Ratio (mid-2013): 0.80 (In 2016.) - VAT population: 6,710 - Barbados: - VAT threshold in US$: 40,000 (Decision to raise the threshold from US$ 40,000 to US$ 100,000 in 2016.) - VAT standard rates: 17.5 - Other positive rates: 7.5 - C-efficiency Ratio (mid-2013): 0.74 - VAT population: 6,000 - Belize: - VAT threshold in US$: 37,500 - VAT standard rates: 12.5 - Other positive rates: - - C-efficiency Ratio (mid-2013): - - VAT population: 4,062 - Dominica: - VAT threshold in US$: 44,444 - VAT standard rates: 15 - Other positive rates: 10 - C-efficiency Ratio (mid-2013): 0.66 - VAT population: - - Grenada: - VAT threshold in US$: 44,444 (Threshold raised from US$ 44,444 to US$ 120,000 in 2015.) - VAT standard rates: 16 - Other positive rates: 10 - C-efficiency Ratio (mid-2013): 0.48 - VAT population: 824 - Guyana: - VAT threshold in US$: 48,263 - VAT standard rates: 16 - Other positive rates: - - C-efficiency Ratio (mid-2013): 0.37 - VAT population: 2,623 - Jamaica: - VAT threshold in US$: 23,810 - VAT standard rates: 16.5 - Other positive rates: 2;5;10;25 - C-efficiency Ratio (mid-2013): 0.47 - VAT population: 14,000 - St. Kitts and Nevis: - VAT threshold in US$: 55,556 - VAT standard rates: 16 - Other positive rates: 10 - C-efficiency Ratio (mid-2013): 0.67 - VAT population: - - St. Lucia: - VAT threshold in US$: 66,667 (Raised from US$ 66,667 to US$ 150,000 in 2015.) - VAT standard rates: 15 - Other positive rates: - - C-efficiency Ratio (mid-2013): 0.36 - VAT population: 1,496 - St. Vincent and the Grenadines: - VAT threshold in US$: 44,444 - VAT standard rates: 15 - Other positive rates: 10 - C-efficiency Ratio (mid-2013): 0.53 - VAT population: - - Trinidad and Tobago: - VAT threshold in US$: 54,179 - VAT standard rates: 15 - Other positive rates: - - C-efficiency Ratio (mid-2013): 0.43 - VAT population: 20,000 - Regional average: - VAT threshold in US$: 55,868 - C-efficiency Ratio (mid-2013): 0.54 Notes from Table: - The C-efficient ratio is the ratio of VAT revenue to consumption, divided by the standard VAT rate. - The 2017 budget speech proposed amendments in Guyana: standard rate to be reduced from 16 percent to 14 percent, threshold to be raised from 48,263 to 72,394 (US$). ### Next Steps — Policy and Administrative Priorities - Tax policy direction: - Need for better tax policy designs to increase revenues, reduce economic distortions, and promote investment and growth. - Simplify the system and broaden the tax base. - Impose a rules-based regime with a minimum of ministerial discretion and a uniform low-rate broad-based tax regime on all types of economic activity. - Revenue administration reforms: - Require more high-level political attention and engagement. - Support reforms with civil service accountability frameworks. - Fully implement structural reforms: establish function-based headquarters and reorganize field offices along taxpayer segments to improve compliance management. - Stronger headquarters to improve human resource and performance management. - Compliance improvement: - Adopt risk management principles to focus scarce resources on immediate compliance risks (VAT credits, nonfilers, turnover underreporting) and adapt service delivery to taxpayer needs/risks. - Majority of countries have yet to undertake risk assessments and develop multiyear compliance strategies. - Translate strategies into operational plans addressing: inaccurate taxpayer register; weak monitoring and enforcement vis-a-vis nonfiling and tax arrears; insufficient powers to sanction; lack of selectivity in audit programs; poor quality of service and assistance to taxpayers. - Automation and IT: - Urgent need to automate current business processes (many are manual and outdated). - Benefits: reallocate staff to productive tasks, reduce taxpayer compliance burdens, improve compliance. - In nine OECS countries and in Belize, Bermuda, Barbados, Suriname, and Turks and Caicos, replacing existing IT systems is urgent. - Tax administrations have not made business cases linking immediate IT investments and expected performance outcomes. - In small countries, regional initiatives and resource sharing are options. - Human resources and performance management: - Modern administrations need dynamic, needs-based, proactive HR management. - Greater flexibility and autonomy in workforce management are needed; this requires political courage and cultural change. - Priority to enhance performance management, maintain reliable datasets, implement strong reporting frameworks, and produce regular performance reports. - Data integrity and public service constraints: - Data integrity issues and public service constraints pose major threats to tax administration modernization and require attention. ### Conclusions — Effectiveness and Way Forward - VATs have been effective in mobilizing additional tax revenues since introduction in Caribbean countries. - Revenue increases from VATs range from 0.9 percent of GDP to 5.4 percent of the GDP in the countries that introduced VAT during 2005–2013. - On average, an increase of 20 percent of VAT productivity for the region would represent an increase of 2.0 percent of VAT revenues in terms of the GDP. - Deviations from initial VAT objectives: - Legislation deviated from being broad-based, single-rate tax due to zero-rating of domestic supplies, generous exemptions, lower rating of tourism activities, and low registration thresholds, negatively affecting performance and administration. - Recommendations: - Strengthen VAT rather than eliminate it. - Simplify the personal income tax regime to facilitate efficient collection and reporting (e.g., withholding at source). - Coordinate corporate income tax regimes to reduce “race to the bottom” and better protect CARICOM member states against international tax evasion. - Introduce simplified mechanisms (presumptive tax) for small taxpayers. - Transform “stove-pipe” administration by type of tax into an integrated administration focused on major taxpayer segments and a “whole-of-taxpayer” model of compliance management. - Improve IT support and invest in human capital. - Tools and support: - IMF and partners have made tools available: RA-FIT, TADAT, and RA-GAP to help countries assess performance and identify strengths and weaknesses. - ISORA, the new version of RA-FIT, is a priority to gain traction to support performance management. - Country authorities have signaled growing interest in undertaking RA-GAP exercises and TADAT assessments. - Regional programs: - Despite significant efforts and funding needed, structured regional programs to strengthen IT support, audit capacity, and enforcement have enormous potential to raise tax compliance levels and revenue outcomes. *Source: wp1788 - introduction (IMF).* --- _Source: https://www.imf.org/-/media/files/publications/wp/2017/wp1788.pdf_