Despite criticism that the government’s plan to reduce value-added tax (VAT) from 12 percent to 10 percent will result in lower revenue intake, Central Bank Governor John Rolle confirmed yesterday that based on his understanding, there would likely be potential gains.
The Davis administration acquired modeling from independent advisors before it landed on a scenario in which it believes the government could grow the economy while lessening the burden on tax payers.
Under a scenario on which the government settled, tax revenue would grow by 13.5 percent, real gross domestic product (GDP) would increase by 12.21 percent in 2022, employment would increase by 8.41 percent and poverty levels as a percentage of the population would decrease by 8.03 percent.
“From what the government has shared, a great amount of the effort in this adjustment has been on balancing the rate reduction with broadening the reach of the tax. And from an efficiency point of view it will provide gains around the administration of the value-added tax. So, the projections that that have been put out point towards an increase in value-added tax and from my understanding of the administration requirements for value-added tax there would be efficiency gains from reducing the amount of exemptions and zero-rated items,” Rolle said during a quarterly economic briefing with the media yesterday.
“We have not had that in-depth analysis, but again from my understanding of the administrative requirements around value-added tax and the outcomes that you can get from increasing complexity versus decreasing complexity, there are potential gains if you reduce the complexity of the tax.”
Along with reducing the VAT rate, the government also intends to reintroduce the tax on breadbasket items and certain medications, which was also factored into the model. This strategy, coupled with improved performance in the tourism sector, are expected to bode well for revenue growth in the near to medium term, Minister of Economic Affairs Michael Halkitis said last week.
According to Rolle, the tourism sector is positioned to record full calendar year business in 2022.
“This, combined with continued recovery in occupancy rates and the return-to-use of residual room inventory, will generate forecasted economic growth for 2022 anywhere between six percent and eight percent. It will allow for the much-needed return of employment in the sector and downstream improvement in
other parts of the private sector and in public finances,” Rolle said.
“The recovery path still has to be seen against a double-digit contraction in the economy in 2020, which is still not expected to be fully erased before 2023 at the earliest and the ongoing expansion in the employable workforce, which along with furloughed persons have added to the jobless rate.”
In August, total visitor arrivals stood at 189,823, the highest recorded number of arrivals for the year reported thus far. This is continued improvement over July, which saw 183,270 total visitors through the country’s first port of entry; June which saw 135,000 and the almost 94,000 recorded in May.
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source https://thenassauguardian.com/central-bank-governor-potential-gains-if-you-reduce-vat/
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