Despite projections in its latest report on Belize that the economy is expected to experience a downturn in 2009, the International Monetary Fund (IMF) is recommending that the Government of Belize increase the rate of General Sales Tax from 10% to 12.5%.
Three years ago, the Sales Tax was hiked under the Musa administration amid fierce public protests and objections, and implemented on July 1, 2006, at a rate of 10%.
GST replaced the 9% Sales Tax which started out in April 1999 at a rate of 8%, after the People’s United Party abolished the United Democratic Party’s 15% Value Added Tax.
The latest IMF report argues that the increased tax rate of 12.5% is needed to improve government’s financial stance, by giving it a primary surplus in the next budget year (2010/2011).
“A partial freeze on recurrent expenditure and an increase in the sales tax rate by 2½ percent (to 12½ percent), would help bring the central government primary surplus to that level,” the report says. “In FY2009/10, the overall balance of the central government is projected to shift from a surplus to a deficit. The budget approved in March targets an overall deficit of 1¾ percent of GDP, compared with a surplus of 1¼ percent of GDP in the last fiscal year.”
The IMF report claims that government needs to boost the primary surplus by 2011, from 2% of GDP to above 4% of GDP, “and to stay at that level in subsequent years in order to halve the debt-to-GDP ratio by 2019.”
Apart from hiking the sales tax rate, the report recommends “strict control on the growth of recurrent spending.”
Tax revenues reported for the 2007/2008 budget year were billed at $592 million. The IMF report projects that by the 2011/2012 financial year, Belizeans will be paying 35% more taxes than they did only two years ago – approximately $800 million.