• Hospital loan cancel gives Gov’t $46m surplus
• But top official warns on ‘substantial tax gap’
• End-year payments spike of ‘$100m or more’
By NEIL HARTNELL
Tribune Business Editor
The Ministry of Finance’s top official yesterday said there is “no victory lap yet” despite the Government’s modest $46.2m April surplus due to the continued existence of a likely “substantial tax gap”.
Simon Wilson, the financial secretary, told Tribune Business that while no numbers had been produced there was strong “anecdotal” evidence that there remains a large difference between the tax revenues that the Government collects and what it is actually owed under law.
Speaking as the Government recorded a rare monthly fiscal surplus, “largely owing” to the return of an $86.2m loan facility that has been cancelled, he added that there is “a lot more work to be done on compliance and enforcement” even though VAT revenues for the first three to four months of the 2022 calendar year were said to be 10 percent ahead of pre-COVID figures.
The Public Treasury received $121m in VAT revenues during April, which represents filings and collections from the prior month. March would have been the first month that all VAT registrants - quarterly as well as monthly payers - submitted filings at the new, lower 10 percent rate and on a broader tax base due to the elimination of most ‘zero ratings’ and ‘exemptions’.
Mr Wilson said the April outturn, which was narrowly higher than the $119.3m in VAT collected in January (December’s filings and payments) under the old 12 percent rate, showed that the reduced rate and broader tax base had produced the “desired effect” by increasing revenues. However, he conceded that the economy’s post-COVID reflation and inflation will also have played a part.
And, even though VAT collections exceeded full-year targets in the first ten months of the 2021-2022 fiscal year, the financial secretary said the Government is not making any upward revisions to projections that revenues will come in some $208m ahead of the original Budget estimates.
This, Mr Wilson explained, is because VAT revenues on real estate purchases were “soft” in June as parties involved in such deals delayed bringing documents forward for stamping until this month so that they could tax advantage of the lower rates associated with the 2022-2023 Budget.
And government spending typically peaks just before the fiscal year closes at end-June as ministries, agencies and departments present all their unpaid bills and IOUs for payment in a bid to clear them before that date. Mr Wilson said the Ministry of Finance is presently calculating this payment surge, but conceded it “could be up to $100m easy or way more”.
Still, he added that the Government was “very confident” based on the April numbers and figures for the two prior months that the VAT rate cut - from 12 percent to 10 percent - has had no negative impact on revenues and may have slightly increased them.
“We said initially that it would take us about three months to properly see if the cut has really had the effect we desired. I think it has, but we have a lot of work to do on enforcement and compliance,” Mr Wilson told this newspaper. “We don’t know our tax gap.
“That is the gap between what is paid and what the amount potentially owed is. What we have seen is the gap may be substantial, so we have a lot of work to do. Anecdotally, it could be substantial, so there’s much more work to be done on the compliance side, much more.”
The Prime Minister alluded to such a “tax gap” in his May Budget presentation, when he said the $169.433m real property tax collection target for 2022-2023 is but a mere 60 percent of the total $280m billed to taxpayers, meaning that $4 out of every $10 owing to the Public Treasury goes uncollected.
“We’re somewhat satisfied but not very satisfied,” Mr Wilson added of the April figures and fiscal performance over the 2021-2022 budget year’s first ten months. “We have a lot more work to be done on the revenue side, a lot more. The Business Licence is an area of concern, so there is no victory lap yet.”
VAT collections of $956m for the ten months to end-April exceeded full-year forecasts of almost $926m with two months still to go in the fiscal year. “I think we’re trending about 10 percent above over those three to four months. We’re trending higher than pre-COVID. We’re trending above 2019,” Mr Wilson said of the VAT figures.
Based on performance for 2021-2022 to-date, the Government could have realised an additional $170m in VAT over the 2021-2022 fiscal year’s final two months. This would take total collections for the full-year to around $1.126bn, a figure that would be close to $300m shy of the $1.412bn in VAT targeted for 2022-2023.
“We said we’re going to be $208m above the projection and we’re sticking with that projection,” Mr Wilson said of full-year revenue, suggesting that VAT has not closed out 2021-2022 so strongly. “Because of the changing rates, many persons held their property transaction documents back in June. June was kind of soft.”
The Government has introduced a tiered scale for VAT payable on property transactions below $1m, eliminating the previous 10 percent rate that all purchases valued at above $100,000 paid. While persons buying property valued at less than $100,000 will still pay the 2.5 percent VAT rate on the sale/purchase, those acquiring at a price between $100,000 and $300,000 now pay 4 percent.
Non-first time buyers face a 6 percent VAT rate where the property value falls between $300,000 and $500,000, and 8 percent between $500,000 and $700,000. Properties valued at between $700,000 and $1m attract 9 percent. To obtain these lower rates persons held back bringing their conveyances forward for stamping, and payment of due taxes, until this month.
The April fiscal report, released by the Ministry of Finance, reveals that while the Government generated a $46.2m surplus for the month this was “largely owing to the return of a $86.2m PHA (Public Hospitals Authority) capital subvention”.
Mr Wilson confirmed this relates to the cancellation of a loan from Banco Santander, underwritten or guaranteed by the World Bank’s Multilateral Investment Guarantee Agency (MIGA), which was taken out by the former Minnis administration to finance redevelopment of both the Princess Margaret Hospital (PMH) and Rand Memorial Hospital. Despite the low 3.23 percent interest rate attached, the Davis administration has elected not to proceed with that.
Without this one-off development, a deficit of some $40m would have been recorded for April. And, while the deficit for the ten months to end-April 2022 looks relatively healthy at $290m, just 33.8 percent of the $858.6m projected in the supplementary Budget, this was set to expand substantially before June ends.
Besides the extra $251.4m in supplementary borrowing needed to pay off various arrears, Mr Wilson said “the cyclical nature of the Budget” meant many government payments take place towards fiscal year-end. He added that this “could be substantial”, ranging from $65m or 0.5 percent of GDP, to “up to $100m easy or way more”, as both government vendors and agencies bid to “clear their books” before end-June.
JokeyJack 10 months, 3 weeks ago
What is a "likely" tax gap? If I add 2 and 2 together is the answer "likely" to be 4 ? LOL
tribanon 10 months, 3 weeks ago
Wilson's talking about a victory lap when what he really needs is a good slap broadside his head. But he's so dense, I doubt even that would knock the slightest bit of sense into him.
Honestman 10 months, 3 weeks ago
Seems the PLP strategy is to "kick down the road" all the painful economic decisions that must be made sooner rather than later (i.e. removal of non-jobs in the civil service, how to properly fund the NIB, reduction in Government debt). It wouldn't surprise me if the thinking is to hold out until the next election and then allow the IMF to make those decisions for us when we have to go "cap in hand" to them. Let no one be fooled, however, the day of reckoning must come and it could come sooner than the Government is planning.
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