With Jamaica's tax revenues and grants running at $31.2 billion below budget, forcing the government to cut spending by $34.4 billion during the period April to August of this fiscal year, the International Monetary Fund [IMF] is warning governments to ensure that tax measures do not damage the productive capacities of their economies.
The IMF stressed in its latest Fiscal Monitor that governments must safeguard their revenues without hindering private investments, innovation, employment and economic growth on which they depend to collect revenues on a sustainable basis.
Elaborating, the international lending agency stressed that taxes shape economic decisions in many ways. For example, when taxes push firms to invest in non- productive assets or taxes over time, they weaken the productive base of the economy.
The IMF says this makes it difficult for the taxes imposed to be collected on a sustainable basis because it stifles growth and taxes are dependent on economic growth.
The Fund therefore stressed that the guiding principle for taxation must be neutrality- it must not interfere with economic decisions.
It also pointed out that taxes on raw materials and other productive inputs lead to an increase in the cost of production, prices, demand, employment and growth.
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