Facing twin challenges of low energy prices and a sluggish global economy, Trinidad and Tobago finds itself in a perfect storm. To illustrate the extent of this challenge, revenue from petroleum fell from TT$19.3bn ($2.9bn) in 2014 to TT$1.7bn ($254m) in 2016, resulting in a huge hit to government coffers. While these circumstances are trying, they have highlighted the need to strengthen the taxation regime and adjust fiscal policy. Consequently, the government has been looking at ways to improve the tax system and raise tax revenue through better collection, while also taking measures to curb expenditure and generate further income.
One key revenue generator is the introduction of a second tier of taxation at a rate of 30% for individuals and companies with chargeable income or profits in excess of TT$1m ($149,000). Previously, T&T had a progressive tax rate capped at 70% for individuals, while companies paid a flat rate. The minister of finance, Colm Imbert, expects to raise a further TT$560m ($83.7m) under the 30% rate. The danger of increasing taxation in this manner, however, is that it encourages more manipulation of revenue declared for tax purposes.
Taxation on alcohol and tobacco has also raised by 20% and 15%, respectively, which will contribute to government revenue, but should not lead to any significant impact on suppliers, given relative inelasticity of demand in these segments. Companies supplying these products continue to see strong profitability. The government has also imposed a controversial 7% tax on online purchases. People in T&T are accustomed to internet shopping, and a large part of banking liability is tied to settling credit cards for online purchases. This puts pressure on the availability of foreign exchange. The government intends for this tax to reduce demand for imports, helping to secure scarce foreign exchange, while also supporting local industry. The tax should generate TT$70m ($10.5m) in additional revenue.
Effective in 2017, property taxes have been reintroduced, subjecting owners to the rates prescribed in the Property Tax Act. Values have yet to be determined and published. The last time property taxes were enforced was in 2009. A rate of 1-6% depending on the type of property will be applied, and under the Property Tax Act there is a provision to exempt homeowners who are unable to pay. The property tax should be introduced as soon as possible, as the current predetermined property values upon which property tax rates are calculated are low and need adjusting. Additionally, the government has continued to reduce expenditure with a phased removal of fuel subsidies. In 2017 the price of diesel will increase by 15%, more accurately reflecting market supply and demand trends, and the impact will be felt through increased transportation and distribution costs for the consumer. The government has also moved to introduce tax incentives for industries, namely, construction, manufacturing, agriculture and tourism, which have the potential to increase economic diversification and bolster foreign exchange reserves. The energy sector remains crucial to T&T’s economy, and we need to take advantage of our expertise in this field by exporting knowledge and services. The country must also focus on non-energy industries. For example, in order to stimulate the agricultural sector all approved agro-processing operations will now be tax free, subject to qualifying criteria. More broadly, the government also established a public-private partnership business tax relief of 50% and other fiscal incentives for businesses, targeting the mobilisation of private sector funding for public infrastructure, facilities, amenities and services. Additionally, to facilitate efficient and effective tax collection, in the FY 2016/17 budget the government pledged to establish the T&T Revenue Authority. Overall, these measures will not completely alleviate the fiscal deficit. However, following continued reduction of subsidies, further enhancements to the tax administration system and a tax incentives regime that encourages diversification and innovation, the country should be well placed for economic recovery.
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