Trinidad and Tobago is enacting sweeping changes to its tax system, with the government to establish a new revenue authority and implement a series of reforms as part of efforts to bolster state revenues and address recent fiscal imbalances.
In October the government announced the creation of the T&T Revenue Authority (TTRA), the new agency responsible for overseeing tax collection in the country.
The authority, which takes over from two existing bodies – the Inland Revenue Division, and the Customs and Excise Division – will also be charged with improving financial transparency, conducting audits and investigating suspected tax evasion.
Motorists and gaming sector to see tax increases
The creation of the TTRA, expected to be operational early next year, came as Colm Imbert, the minister of finance, announced a series of tax reforms in the 2018 budget.
Tabled on in early October 2, the reforms include a series of changes affecting motorists and the transport sector, with the government to adjust an existing national fuel subsidy that officials believe could save billions of T&T dollars annually.
Under the changes, the price of super petrol will increase from TT$3.58 ($0.53) to TT$3.97 ($0.59) per litre, and diesel will rise from TT$2.30 ($0.34) to TT$3.41 ($0.51). Meanwhile, efforts to promote the use of environmentally friendly transport will see the introduction of a 25% motor vehicle and Customs duty tax on private vehicles with engine sizes above 1599 cc.
Another area of focus is the gaming and betting industry, where the government is introducing new taxes on gaming devices, electronic gambling machines and cash winnings.
Taxes on mechanical gambling games will increase from 20% to 40%, while annual taxes on electronic roulette devices will rise from TT$36,000 ($5350) to TT$120,000 ($17,800). The industry has long been identified as one where tax accountability could be improved.
While the government forecast around TT$500m ($74.1m) worth of tax revenue from the industry last fiscal year, a compliance rate of 10% meant that only TT$56m ($8.3m) was collected, according to Imbert, highlighting the task ahead for the incoming tax authority.
Other changes include a rise in corporate tax from 25% to 30%, with the rate imposed on commercial banks increased from 30% to 35% and a standardised royalty rate of 12.5% for the hydrocarbons industry – royalties previously ranged from 10-15%.
Measures to increase revenue, impact activity
The wide-ranging tax reforms come on the back of a decline in the T&T economy in recent years, and the new measures are aimed at boosting depleted revenue streams and bridging the national deficit.
Following a global downturn in oil prices, petroleum revenues dropped from TT$20.9bn ($3.1bn) in 2014 to TT$2.8bn ($414m) in FY 2017, which ended in September. This saw GDP drop by 6% last year and is expected to contract by a further 3.2% this year, according to the IMF.
The increase in taxes and the creation of the TTRA are designed to improve revenue collection and replenish the state’s coffers, while it is hoped the streamlining of government authorities will improve efficiency and further reduce public spending.
Although the measures announced in the budget are likely to boost state revenue, they could also have a flow-on inflationary effect. Increases in fuel costs are expected to impact logistics, manufacturing and domestic transport costs, with price rises likely to be passed on to consumers.
While inflation has remained moderate this year, at 1.2% year-on-year as of September, according to central bank data, it is probable the consumer price index will come under more pressure in 2018 as the effects of higher taxes and subsidy cuts are factored in.
As is frequently the case with tax increases, the moves have also spurred opposition from those most affected. Stakeholders have warned that significant tax increases in the gaming and hydrocarbons industries will place a strain on businesses and impact activity, while opponents of the proposed property tax have taken legal action against the government, raising concerns over the legality of the property valuation processes.
IMF supports revenue collection reforms
Despite some opposition, the reforms have been largely supported by the IMF, which stated in a recent analysis report that the revenue collection methods were a “step in the right direction”.
“Directors commended steps taken in the FY 2016/17 and in the FY 2017/18 budget proposal towards fiscal adjustment,” the IMF Executive Board stated in the assessment, published in early November. “These steps included the introduction of property, excise and gaming taxes, royalties on natural gas production and elimination of fuel subsidies.”
The fund called for more action to be undertaken, however, recommending the broadening of value-added-tax to encompass more goods and services, and the finalisation of reforms to the oil and gas sector’s fiscal regime.
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