Government’s revenue strategy for the medium-term will focus on a review of the tax administration system, including streamlining taxes and re-evaluating tax and duty exemptions and incentives.
In the current financial year, Value Added Tax rates will be reduced to two rates of zero and 15 per cent, with the potential to increase tax revenues in the medium-term by aligning the VAT rate to a single rate to bring more simplicity to the tax regime.
However, the timing of this will be carefully considered, including adequate targeted expenditure support to protect the vulnerable.
The Ministry of Finance said similarly, there is also opportunity for reintroduction of a dividend tax regime or alternatively increase in the corporate tax further based on the revenue needs of the Government.
Apart from this, there is scope to further increase the departure tax in the future given that tourism specific like Service Turnover Tax and Environment Climate and Adaptation Levy has been completely abolished.
Minister for Finance, Professor Biman Prasad, said further improvements will be made to tax exemptions to streamline processes and reduce tax expenditures – Non-tax revenues for certain public services will also be reviewed based on the principle of cost-recovery to boost overall revenue.
The following will be the guiding policy principles in the medium term:
- Widen the tax base by gradually removing exemptions and other distortions;
- Improve tax compliance and collection of tax arrears;
- Make the tax regime and tax administration even simpler to encourage tax compliance and;
- Review non-tax revenues on a cost recovery basis, while also ensuring that the vulnerable and disadvantaged are protected.
Prof Prasad said the underlying revenue policy framework focuses on macro-fiscal stabilisation measures that will put Government debt to GDP ratio on a sustainable and downward path and increase revenue to GDP ratio to pre-pandemic levels.
He added, based on the tax policies and economic growth projections, the medium-term revenue forecasts are expected to normalise to around 27 per cent of GDP.