The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Ministry of Finance’s top official has touted a 26 percent VAT revenue increase, compared to pre-COVID numbers, for the first two months of calendar 2022 as a signal that the rate cut has not impacted government revenues.

Simon Wilson, the financial secretary, told the weekly press briefing by the Prime Minister’s Office that the $212.6m in combined VAT revenues collected for January and February 2022 exceeded sums collected during the same two months in 2020 by some $47.1m.

Using those two months rather than 2021 comparatives, as the former represented pre-pandemic figures, he said VAT revenues had “increased dramatically” despite the Davis administration cutting the rate from 12 percent to 10 percent with effect from January 1, 2022.

“For the period January and February 2022, total VAT collected was $212.6m,” Mr Wilson said, comparing this to the $165.5m collected during the same two months in 2020. “Even though we had reduced the VAT rate from 12 percent to 10 percent, we experienced a $47.1m or 25.8 percent increase in VAT collections.

“The VAT decrease has not led to an overall decrease in VAT revenue. The VAT performance has actually increased dramatically. Some of that was because of the increase in economic activity because of the economy’s re-opening. Some of that is because of our revenue administration efforts, and some of that is because the lower VAT rate encouraged more consumption.”

The VAT rate cut also eliminated multiple zero ratings and exemptions, which may also have aided revenue collections. While economic activity has undoubtedly increased due to the post-COVID re-opening, it is still early to judge the VAT rate cut’s overall impact along with other associated adjustments.

A better gauge of the revenue effect will come later this month as all VAT registrants - especially quarterly filers who will be submitting their first returns since the 10 percent cut took effect - will be remitting the tax they have collected to the Government along with monthly filers. And, given that VAT is calculated as a percentage of the value of goods and services transactions, inflation-driven price increases also have boosted the Government’s coffers.

Elsewhere, Mr Wilson said the $33.1m deficit recorded for February was “approximately 50 percent lower” than that incurred during the same month in 2021.”Even though we had the expenditure increase, the deficit has continued to shrink,” he added.

“For the eight months ending February 2022, the deficit is estimated to be $326.5m, which is 38 percent of the Budget [forecast of $858.6m]. It’s a 62.2 percent, or $537m reduction, from the $863.7m experienced for the prior year period.”

The Government’s net debt rose by $181.3m during February 2022, and by $428.8m for the first eight months of the 2021-2022 fiscal year, which Mr Wilson said was “a dramatic reduction” compared to the $1.29bn debt incurred during the same period in 2020-2021.

None of these developments is surprising, as the former Minnis administration had to borrow heavily to keep the economy and public service going during the COVID pandemic’s first year when the bottom fell out of its revenue collections. The former government also maintained conservative revenue forecasts, which explains why the deficit is faring well against comparatives as the economy reflates.

Mr Wilson said February’s revenues fell by 16.2 percent or $38.7m month-over-month, hitting $197m, which he described as “in line with seasonal trends”. However, compared to February 2021, revenues were up by 40.8 percent or $57.2m as this year was up against relatively weak COVID-hit comparisons.

Total government spending was down by 4.4 percent, or $10.7m, at $230.5m month-over-month for February 2022. Year-over-year, though, it was up by 10.1 percent. “The big driver of the increase in expenditure was paying prior year bills as we try to catch up with arrears,” Mr Wilson said.