Global Daily Tax News, Tax Reform Plan Urged For Saint Kitts And Nevis, (May 20, 2024)

The International Monetary Fund has put forward a series of tax reform-related recommendations for Caribbean territory Saint Kitts and Nevis, in its annual Article IV consultation report for the nation.

The Fund has recommended that the territory's fiscal stance should be tightened to maintain a balanced budget over the medium term, in particular to prepare for a future decline in revenues from the citizenship by investment scheme.

The report says, while a small deficit is expected in 2024, the territory will need to find new tax revenue streams to offset the fall in CBI revenues and return expenditures to pre-pandemic levels.

The report recommends: "A comprehensive roadmap for tax reform would help prepare for a future decline in CBI revenues. A more progressive tax system would address the distortions created by broad tax concessions and bring greater fairness and economic efficiency."

It adds: "Reforming the property tax to reflect the current market value of properties and abolish stamp duty, as well as focusing on tax arrears collection, are steps in the right direction. Conducting a review of CIT concessions, with a view to abolishing negotiated tax concessions and income tax holidays, is time critical given the window of opportunity opened by the implementation of the OECD pillar II."

The IMF has also recommended that the territory bring unincorporated businesses within the scope of corporate tax, which would enable these entities to take advantage of full expensing of capital spending and enable them to carry forward their losses.

There is also scope to scale back VAT exemptions and expand VAT coverage to professional and financial services, the report says.

On environmental policy, the report recommends: "Carefully crafted policies in the areas of natural resource taxation, utility prices, investment tax incentives will be required to fully seize the potential of energy transition and harness renewable energy resources towards sheltering the country from growing climate risks."

The Fund recommended the Government should establish a tax framework that provides incentives for renewable energy investment while allowing the public sector to receive a share of future rents from such investments. Broad based tax exemptions for such investments should be avoided, and more targeted and economically efficient subsidies or tax incentives considered instead, it concludes.