Minister of Finance Colm Imbert says the total value of outstanding Value Added Tax (VAT) refunds by the end of March 2023 was an estimated $7.8 billion.
However, in response to questions from Independent Senator Amrita Deonarine during a Senate sitting on Tuesday, Imbert said VAT bonds will be introduced to help reduce the outstanding amount of refunds.
He said the time needed to clear this outstanding amount was reliant on the availability of cash flow and administrative reforms which he anticipated would happen with the full implementation with the TT Revenue Authority.
As a short-term solution, Imbert said the Cabinet recently agreed to the issuance of $3 billion in VAT bonds, which would assist in reducing the outstanding amount, together with cash payments.
“It is anticipated that these $3 billion bonds will be issued between June and August of 2023 and as in the past, these bonds will be suitably priced to allow full redemption at par in the commercial banks. These bonds will bring the total amount of VAT refunds for 2023 to over $5 billion and significantly reduce the amount of outstanding refunds.
“At this time the cash refunds are estimated to be between $1 and $2 billion, so you’re really looking at a backlog that is closer to $2.8 billion.
“We do believe that when the Revenue Authority comes into full implementation, that the gap, the non-compliance gap, will be significantly reduced.
“So it’s a combination of bonds and cash refunds and better administration of the tax system.”
Imbert added that while taxpayers experience delays in claiming such refunds, they were usually due to inadequate legal and institutional frameworks and a weak administrative capacity to identify VAT refund fraud.
He said in 2019 the International Monetary Fund’s (IMF) Fiscal Affairs Department began an exercise to measure the non-compliance VAT gap, which is the difference between potential VAT that could have been collected and actual net VAT accrued.
The findings of the exercise, he said, revealed that TT loses around $4 billion a year to fraud and under-reporting of VAT.
He said this could be addressed with the introduction of the Revenue Authority.