The International Monetary Fund (IMF) has urged the Saint Lucia government to implement major tax reforms, including raising Value Added Tax (VAT), introducing a tax on sweetened drinks, and phasing out excessive tax exemptions that erode revenue.
In its 2024 Article IV Consultation Report, published last week, the IMF noted that Saint Lucia is missing out on tax revenue equivalent to 12 per cent of GDP due to excessive tax breaks and a “regressive” tax system.
In a statement on Thursday highlighting the IMF’s recognition of Saint Lucia’s economic recovery, the Philip J. Pierre administration noted that after coming to office, it had introduced “historic and timely tax breaks, which include sweeping amnesties on VAT charges”, that “collectively saved local businesses millions of dollars, allowing them the fiscal breathing room to concentrate on improving their operations and building resilience.”
However, the IMF has estimated that by implementing key tax reforms, the government could increase tax revenue by 2.5 per cent of GDP over the medium term.
The Washington-based financial institution has recommended adjustments to VAT, advising that the main 12.5 per cent rate and the 10 per cent tourism rate be increased. Additionally, it suggested lowering the high VAT threshold to expand the tax base and limiting the number of zero-rated items.
These measures, it said, could generate an additional two per cent of GDP, and make VAT Saint Lucia’s main and most efficient revenue source.
The IMF further suggested that raising VAT on fuel from zero to the statutory rate and restoring the fuel excise tax to pre-COVID-19 levels could generate at least 0.6 per cent of GDP.
“The ensuing revenues should help finance climate adaptation and reach carbon emission targets,” it said.
Also on the list of recommendations is an increase in excise tax on alcohol and tobacco and the introduction of a tax on sweetened beverages.
According to the IMF, these taxes could help reduce the negative health effects of consuming these products while generating additional funds for healthcare.
Personal Income Tax adjustments were also recommended. According to the IMF, the current system includes extensive allowances, deductions, and exemptions that favour higher-income earners. It advised replacing these with tax credits for low-income earners and eliminating “regressive deductions” such as insurance benefits and share purchases.
Additionally, it said, “Dividends, rental income, capital gains, and interest income (all exempt) should be taxed.”
The IMF also called for an overhaul of Corporate Income Tax (CIT), noting that widespread tax incentives—particularly in the highly profitable hospitality sector—significantly reduce CIT revenue. Eliminating these incentives could yield between two and four per cent of GDP, it said.
The IMF said implementation of the OECD Pillar II framework – which sets a 15 per cent global minimum tax – offers an opportunity to tax international hotels operating in Saint Lucia more effectively.
Additionally, the IMF said, the design of the CIT should be supported by a rules-based framework to reduce discretionary tax concessions and improve transparency. A monitoring unit should also be established, it recommended.
The IMF also advised the government to develop property taxes. It said recurrent property taxes should become an important, growth-friendly source of revenue.
“The 2017 residential property exemption should not be renewed, at least for larger, high-value properties, and the property cadaster should be extended,” the report stated. “The three-year exemption for new commercial properties should be shortened. Reducing high transfer taxes can stimulate the secondary real estate market.”
Beyond tax policy changes, the IMF stressed the need to modernise Saint Lucia’s tax administration to improve compliance and efficiency. It highlighted current issues such as insufficient staffing, manual processes, and inadequate data quality and transparency, especially with the Customs Department.
“While progress has been made, auditing and inspection capabilities should be improved further to match regional standards, leveraging the ongoing Tax Administration Modernisation Project and analytics-driven compliance risk management. Improving taxpayer access and service digitalisation, reducing the perception of impunity for tax avoidance and evasion, and fostering a strong culture of compliance are also critical,” the report stated.
The IMF advised against further extending the current tax amnesty programme, which has already been extended until May 2025. The amnesty – which waives interest and penalties on previously unreported tax liabilities, and tax liabilities pertaining to years before 2000 – is estimated to result in foregone tax revenue of 4.6 per cent of GDP—up to six times the amount of taxes collected through the programme.
The government was warned that without decisive reforms, it would continue to miss out on vital tax revenue, limiting its ability to invest in public services and economic growth.
The IMF said that above-potential economic growth in the near term makes now the best time to implement reforms with minimal short-term financial strain.
In its report, the Washington-based financial institution noted that Saint Lucia’s economy rebounded strongly from the COVID-19 pandemic, with GDP growth projected at 3.7 per cent in 2024, driven by a surge in tourism, construction, and manufacturing.
However, it cautioned that growth will likely taper to a modest 1.5 per cent in the medium term as major infrastructure and hotel projects reach completion.
