St. Lucia and IFC Work Together to Support Effective Tax Incentives

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IFC, a member of the World Bank Group (WBG), and the Government of St. Lucia kicked off the second of three workshops designed to help government officials measure the costs and benefits of tax incentives and leverage these incentives to promote productive new investments in the Caribbean.

The workshops are supported by the Department of Foreign Affairs, Trade and Development of Canada (DFATD) and Switzerland’s State Secretariat for Economic Affairs (SECO).

Tax incentives have been a key feature of investment promotion strategies for most countries in the Organisation of Eastern Caribbean States (OECS). However, there is little evidence to suggest that these incentives correlate with investment flows. While the region offers some of the most generous incentives packages, there has not been a corresponding increase in investment.

The workshops help key technical personnel in the OECS identify best practices in tax incentive policy and administration and offer a framework for analysing the effectiveness of investment incentives in their countries, according to IFC.

“Finding the right balance between tax incentives that attract investors and the need for collecting revenues is essential,” said Dr. Sebastian James, Senior Economist at the World Bank. “This can be achieved by having an evidence based approach to tax incentives which helps countries understand the impact of tax incentives and their role in attracting foreign investors. The goal is to provide governments with all the information they need to develop effective tax regimes that support their local economies.”

Dr. Reginald Darius, St. Lucia’s Permanent Secretary in the Ministry of Finance, noted that the country is keenly interested in measuring the fiscal costs and socio-economic benefits of tax incentives to ensure the competitiveness and sustainability of its incentives regime.

This week’s workshop will focus on developing detailed country-specific models to analyse tax expenditures. It will provide OECS participants with training on how to calculate fuel tax, exempted goods, as well as how to calculate tax expenditures on income tax.

A previous workshop held in March of this year provided participants with simple models for tax expenditure reporting and helped them use national statistics to calculate tax expenditure for VAT, customs duties and exemptions, and corporate income taxes.