Discretionary tax concessions should be totally removed, while the overall level of statutory concessions should be reduced. This advice has come from the International Monetary Fund (IMF) in their recently released IMF country report on St. Vincent and the Grenadines for 2005.

The report, which reviews last year’s economic performance, has called on government to tighten its concessions as it seeks ways to increase current revenue. The report cited “the need to significantly enhance control over the granting of tax concessions, while advising that the scope for concessions should be strictly limited to those in the statutes.”{{more}}

According to the report, “concessions are a major source of revenue loss, with concessions on international trade taxes representing about one third of tax revenues gathered in 2004.

And with strong competition from neighbouring territories to attract more direct foreign investment, some analysts have claimed that adopting concessionary methods might be necessary if this country wants to attract more foreign investment.

But the IMF urged this country’s government to seek greater regional cooperation, in order to have a common approach to tax concessions, and thereby avoid a region-wide “race to the bottom.”

With the IMF recording this country as losing significant revenue through tax concessions, this country’s finance ministry has already been spurred into action. In the 2006 Budgetary Address, Prime Minister and Minister of Finance Dr. Ralph Gonsalves said “For 2006, we propose to reduce this cost by lowering the level of concessions granted to 50 per cent of the import duties and consumption tax payable” on various imports, including vehicles for tour operators and machinery and equipment for use in approved industries including construction.

The Ministry has also moved to improve its revenue collection by strengthening its Intelligence and Operational Units at both the Customs and the Inland Revenue Departments.

St. Vincent and the Grenadines has already recorded a $15 million increase in current revenue for the first quarter of this year, up from $64.5 million in 2005 to $79.5 million. The government has stated that its target revenue from tax sources is $321,580,000. This figure is expected to account for some 88 per cent of government’s inflows in 2006.