Grenada defies IMF on taxes

The Grenada government says it has defied the advice of the International Monetary Fund (IMF) to introduce a tax amnesty and reduce the value-added tax (VAT) on key sectors in an effort to stimulate economic growth.

Finance Minister Nazim Burke made the disclosure in a robust defence of the Tillman Thomas administration's tax policies that have caused fresh criticism as the local economy continues to struggle.

"This was a very bold and courageous move made against the advice of the International Monetary Fund," said Burke.

"We had a big disagreement on this because, as far as where they were sitting, we should not grant any amnesties and I said no we are granting the amnesty."

However, government has not revealed how much money was raised as a result of the tax amnesty, and its defiance of the fund does not seem to have affected its schedule of disbursements under the IMF-extended Growth and Credit Facility Programme introduced in April.

"I am convinced about the correctness of this measure because by granting the amnesty we gave a break to businesses, allowing them to continue to function so that they will not lay off workers," said Burke.

A 15 per cent VAT on goods and services was introduced here earlier this year; however, several sectors of the economy such as yachting, manufacturing and the hotel industry were allowed to pay 10 per cent.

"They were all measures taken to ensure that you do not suppress economic activity; that you allow some room for these businesses to operate," said Burke.

But the founding member of the ruling National Democratic Congress, Ken Joseph, has criticised the administration's tax policy, which he blames for growing unemployment in the private sector.

Joseph wants the government to reduce VAT on small businesses from 15 to 10 per cent.

"Most of the civil servants are able to pay their mortgages, but your business sector is being squeezed and jobs are being lost," he said.

"The VAT of 15 per cent on small businesses is too much. It is killing the initiative of new business to come on stream because of the cash flow."

Joseph owns several successful businesses including a mall with struggling tenants.

"Government should give an incentive to move back that 15 per cent to even 10 per cent as an ease because that is where most of the jobs are being lost," he said.

"They are indirectly killing the private sector, and workers are losing their jobs mostly in the private sector."

Finance Minister Burke said the government also refused to bow to pressure from the IMF and other international organisations demanding that the income-tax threshold of EC$60,000 (US$22,200) on annual salaries be lowered to EC$36,000 (US$13,333).

Burke said Bermuda, Cayman Islands and The Bahamas are the only three Caribbean countries with similar income-tax thresholds to Grenada.

"If we were so concerned about suffocating people and increasing the tax pressure and so on, would we not have increased that burden or lower the threshold?," he said.

"What we are giving you here is not consistent with the suggestion that this is an over-taxed country."

- CMC