Haiti: Selected Issues and Statistical Appendix
Author: International Monetary Fund
Publication Date:
23 Aug 2007
eISBN:
9781451817690
ISBN:
9781451817690
Language:
English
Keywords:
ISCR; CR; Haiti; fund staff estimate; exchange rate; revenue; revenue administration; customs duty; revenue collection; revenue authorities; central government; Income tax systems; tax administration
Download PDF (405.3 KB)

This Selected Issues paper analyzes Haiti’s external competitiveness. The analysis shows that the country has been experiencing equilibrium real exchange rate appreciation pressures, which have originated more recently from the rising inflow of transfers. The paper discusses avenues for further developing Haiti’s monetary policy framework to help consolidate a stable low-inflation environment and support deepening domestic financial markets. The analysis suggests that Haiti’s monetary policy regime could be strengthened through a two-step approach. The paper also focuses on options to increase domestic revenues as a means of funding priority expenditures.

Abstract

This Selected Issues paper analyzes Haiti’s external competitiveness. The analysis shows that the country has been experiencing equilibrium real exchange rate appreciation pressures, which have originated more recently from the rising inflow of transfers. The paper discusses avenues for further developing Haiti’s monetary policy framework to help consolidate a stable low-inflation environment and support deepening domestic financial markets. The analysis suggests that Haiti’s monetary policy regime could be strengthened through a two-step approach. The paper also focuses on options to increase domestic revenues as a means of funding priority expenditures.

III. Revenue Mobilization in a Post-Conflict Environment40

59. The absence of a functioning state and public institutions remains a significant constraint to Haiti’s growth potential. The low historical growth performance—Haiti’s economy grew annually by less than 0.5 percent since 2000 and per capita real GDP has contracted for several decades—has been to a large extent caused by lacking provisions of some of the most basic public goods and services, including security, proper judicial processes, health, education, electricity, water supply, and road and transportation systems. This situation has been the result of prolonged internal conflict and political unrest that has weakened—though not totally destroyed—key government institutions. Rebuilding and strengthening these institutions will be critical for economic recovery and development, as has been shown by other post-conflict countries (Box 1).

60. Enhancing social and physical infrastructures will require significant investment outlays in the coming years. A comprehensive tally and costing of investment needs is expected to emerge from the Poverty Reduction Strategy Paper (PRSP) that is currently under preparation. Preliminary estimates of the investment programs presented by the government in July 2006, put the country’s immediate investment needs at about US$5–7 billion. Sectoral investment needs were subsequently presented at a number of donor conferences, and the authorities hope that development partners will provide most of the required financing.41

61. Even if financing for the initial investments can be secured, resources will be needed to cover recurrent costs of these projects, for items such as wages, regular infrastructure maintenance, goods and services, etc.42 According to a recent study, annual recurrent expenditure following any investment in the transportation, energy, health, and education sectors could reach between 5 and 33 percent of initial investment expenditure.43 For Haiti, this means that even in a relatively conservative scenario government spending could increase by 2-3 percent of GDP on a permanent basis, as a result of a large public investment push.

Revenue mobilization in post-conflict countries

Haiti is emerging from an extended period of social and political unrest. Experience in many “conflict countries” has shown that government operations are severely impacted by conflicts and prolonged social strife. Such countries typically experienced sharp drops in government revenue during the period of the conflict, but also rapid recovery once the conflict ended. The disturbances in Haiti were less intense—in terms of loss of life and property—than in some countries that were involved in armed conflicts. Nevertheless, the prolonged period of instability kept revenues subdued.

Haiti’s basic fiscal institutions and legal framework survived the conflict, albeit considerably weakened. Post-conflict countries often face a total collapse of the institutions that make a stable society function. In Haiti, most government institutions suffered, including from human capital drain, but for most part did not disintegrate.

Rebuilding the weakened fiscal institutions is key to reestablishing a functioning government and thus a precondition for revenue mobilization and economic recovery (IMF, 2004; and Brahimi, 2007). The process of rebuilding fiscal institutions essentially entails three steps: (i) creating a proper legal and regulatory framework; (ii) strengthening the fiscal authorities; and (iii) designing appropriate revenue and expenditure policies, while simultaneously strengthening revenue administration and public expenditure management. In the Haitian context, fiscal reforms should focus on strengthening tax administration, including reestablishing control and security over the country at large, in particular key border entry points, and modernizing existing procedures and policies.

uA03fig01

Government revenue in post-conflict countries (year of conflict in brackets)1

Government Revenue (in percent of GDP)

Citation: IMF Staff Country Reports 2007, 292; 10.5089/9781451817690.002.A003

Source: IMF staff calculations.

Experience in a number of conflict countries also suggests that policymakers should be mindful of other aspects that will critically affect the success of revenue reform efforts:

  • Close coordination of technical assistance among donors is needed to ensure that foreign support is mutually reinforcing and evenly distributed across key sectors which should advance in unison.

  • The authorities’ implementation capacity should guide the pace of reform. Domestic capacity constraints call for simple regulations and administrative ease, to allow a successful implementation of relevant rules and regulations with available resources. In the meantime, long-term advisors can help build domestic capacity.

  • Revenue efforts must go hand in hand with stronger public financial management and expenditure execution capacity. From a macroeconomic perspective, it is important that revenue enhancing measures go in tandem with higher levels of spending to remove existing development bottlenecks and avoid a contractionary impact on economic activity. Furthermore, from a political perspective, ensuring the improved delivery of essential services and public goods will garner the necessary public support to advance the reform agenda.

1 For the purpose of this chart, the conflict year is defined as the year with the largest decline in government revenue.

62. At present, central government revenue covers current expenditure but leaves little room for domestically financed investment or new recurrent expenditure (Figure 1). In 2006, the central government collected 10 percent of GDP in revenue, of which more than 9 percent of GDP paid for current expenditure. Domestically financed investment expenditure amounted to less than 1 percent of GDP and was partly financed by foreign budget grants. The vast majority of capital expenditure—4.4 percent of GDP—was executed in the form of foreign-financed projects. Thus, to finance additional recurrent expenditures and to reduce the dependence on foreign aid flows, the government needs to strengthen its domestic revenue effort substantially.

Figure 1:
Figure 1:

Central Government Operations Excluding Foreign Financed Projects

(in percent of GDP)

Citation: IMF Staff Country Reports 2007, 292; 10.5089/9781451817690.002.A003

A. Stylized Facts of Revenue Collection in Haiti

63. Central government revenue collection in Haiti is low by international standards. Haiti collects 10 percent of GDP in revenue, significantly less than similar low-income countries (LICs),44 whose revenue-to GDP ratio amount on average to about 20 percent of GDP (Figure 2a). Haiti’s revenue collection is also low compared to middle-income countries of similar size in the Western Hemisphere (Figure 2b).45 These countries collect on average almost 18 percent of GDP in revenue (16 percent of GDP if countries with substantial revenue from energy production and exports are excluded).46 The significant variation in revenue levels across LICs suggests that a low income level per se is not necessarily a hindrance to revenue collection.47

Figure 2:
Figure 2:

Revenue collection in a across-country comparison

(in percent of GDP)

Citation: IMF Staff Country Reports 2007, 292; 10.5089/9781451817690.002.A003

Source: IMF, FAD tax data base.

64. The structure of government revenue in Haiti is generally comparable to that of other countries in the region.48 Indirect taxes, including excises, value-added taxes (VAT), sales taxes, customs duties, and other taxes account for 75 percent of total revenue in Haiti—compared to 65 percent in regional comparator countries (Figure 3).49 The share of direct taxes in total revenue is the same (20 percent), while Haiti’s collection of non-tax revenue (5 percent of total revenue) is somewhat smaller than in comparator countries (15 percent). Overall, Haiti’s broadly similar revenue structure but weak collection across all types of revenue suggest that there is significant room to improve collection from all sources.

Figure 3:
Figure 3:

Revenue structure in middle-income countries in the Western Hemisphere

(percent of total revenue)

Citation: IMF Staff Country Reports 2007, 292; 10.5089/9781451817690.002.A003

1/ Include substantial revenue from energy production (hydroelectric, oil, or gas).Source: IMF, FAD tax data base.

65. In Haiti, like in many other countries, the VAT is the single most important source of government revenue (Table 1).50 In 2006, the VAT generated almost 33 percent of all revenue. The second and third largest contributors were “other taxes on international trade” and customs duties, with 16.7 and 16 percent of total revenue, respectively.

Table 1:

Central government revenue by collecting agency and tax in 2006

article image

Mostly (over 85 percent) verification fees.

Source: Haitian authorities.

66. More than two-thirds of total revenue is collected at the border, which is quite high. This reflects in part Haiti’s low domestic production base and high import dependence (32 percent of GDP in 2006), which is fueled by a large inflow of remittances (20.7 percent of GDP in 2006).51 The customs authority (Administration Générale des Douanes, AGD) therefore plays a crucial role in revenue collection, especially of indirect taxes.

67. The overwhelming majority of revenue is collected in the nation’s capital. The AGD collects 90 percent of total revenue through its offices in Port-au-Prince, including the international airport (Figure 4). Similarly, 97 percent of total revenue collected by the tax authority (Direction Generale des Impôts, DGI) originate from the larger Port-au-Prince area. Of this, 75 percent is collected by the large taxpayer unit (LTU), with the balance gathered in the central tax office (17 percent) and a few smaller tax offices in the greater Port-au-Prince area. The high degree of revenue concentration reflects the importance of the Port-au-Prince area for the economy and weak tax administration and customs enforcement capacities outside of the capital city. This suggests, that there might be considerable room to increase revenue through a strengthening of basic collection functions in the provinces, even though further strengthening tax administration in Port-au-Prince will also be important given the high revenue base there.

Figure 4:
Figure 4:

Revenue gathered by collecting agency FY 2005/06

Revenue collected by DGI (total G 6,571 million)

Citation: IMF Staff Country Reports 2007, 292; 10.5089/9781451817690.002.A003

Source: Haitian authorities.

B. Strengthening Revenue Collections in Haiti52

68. The Haitian government intends to increase revenue collection to about 12 percent of GDP by 2008 and 15 percent of GDP by 2015 (IMF, 2006b). Experience in other low-income countries has shown that achieving a ratio of this order is a reasonable medium-term target.53 Few LICs have sustained minimally acceptable living standards at tax ratios below 10 percent, and most countries find that increasing revenue beyond 15 percent of GDP requires an expansion of the tax base that can be difficult, both politically and technically.

69. Revenue collection could be strengthened by improving tax administration and broadening the tax base, as well as adjusting selected tax rates. The range of appropriate reform measures depends on initial conditions—status of the tax legislation and its implementation—for specific taxes and custom duties. Therefore, the composition of administrative and policy reforms may vary from tax to tax. Nevertheless, improving the administration of the DGI and the AGD will help to enforce revenue collection across all revenue sources.

70. The impact of any reform on revenue collection will depend on the proper sequencing of tax policy and revenue administration measures. While both tax administration and tax policy-related reforms might be necessary, their proper phasing will be critical. Tax rate increases, create incentives for tax evasion and avoidance. Therefore, the first priority should be to strengthen revenue administration and broaden the revenue base. Tax rate adjustments should be implemented only once the revenue administration is sufficiently robust to offset the additional incentives for evasion.

The authorities’ plans for improving revenue administration

71. Recognizing that revenue administration reform is key to boosting collections across all sources, the authorities are making strong efforts to strengthen the tax and customs authorities.

  • The DGI has formulated a strategic modernization plan and is working on an tactical plan to guide its implementation.54 The strategic plan sets major objectives and performance indicators that would guide the efforts to improve the internal revenue administration (Table 2).

  • Similarly, the AGD has developed a reform plan to reinforce customs control in the provinces and improve customs administration. As a first step, the plan foresees establishing an adequate level of security to allow for an efficient implementation and enforcement of customs controls. To achieve this goal, customs—with interim support from the national police and the United Nations forces—will form its own security unit. In a second step, the plan envisages reinforcing infrastructure and implementation capacity in the provincial offices. Major elements of this second step include: (i) evaluation of available human resources; (ii) measures to fight corruption; (iii) provision of physical infrastructure, like office buildings, equipment, etc.; (iv) increased controls and supervision; (v) extension of the pre-shipment inspections facility to offices in the provinces; (vi) installation of SYDONIA in provinces;55 (vii) improved procedures for the informal sector; and (viii) development of control statistics. In a third step, a risk management system would be implemented; the WTO evaluation scheme put into place; and post-clearance controls enforced. Furthermore, at this stage, the strategy to combat smuggling would be revised. It is envisaged that the implementation of the strategic plan will progress sequentially, starting with the most important, high import-volume customs stations, and then moving on to the smaller posts.

Table 2:

Strategic objectives and activities to reform the DGI

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Source: DGI

72. The above reform strategies provide a sound basis for strengthening revenue administration at the DGI and the AGD, thus promising significant improvements in revenue collection. The authorities are committed to implementing these reforms steadfastly, including by devoting sufficient resources, in particular senior staff, who would be freed from their day-to-day operations so as to dedicate their efforts to overseeing the implementation of these reforms. The experience in other countries has shown that the deployment of long-term external advisors at these key agencies could ensure proper and timely implementation of the reform agenda.

Direct taxes: Personal and corporate income tax

73. The efficiency of income tax collection in Haiti is quite low by comparative standards. Revenue collected from corporate and personal income tax amounted to about 2 percent of GDP in 2006. With a maximum tax rate of 30 percent for personal income, and 35 percent for corporate income, the corresponding income tax efficiency amounts to 3 percent.56 This level is significantly lower than in other Latin American countries, where the average efficiency amounts to almost 15 percent in 2003.57 Income tax rates are, however, broadly in line with IMF recommendations and regional standards, and suggest that rate adjustments would not seem advisable.58

Major features of the income tax and the 2006 reform59

In 2006, income tax rates and tax brackets were adjusted. The reform harmonized the maximum level of personal and corporate income tax rates, and the multi-rate structure of the corporate income tax was converted into a revenue-neutral single proportional rate (see table below). Personal income tax brackets were adjusted upward to take into account the effect of past inflation on the taxable base.

The tax prepayment mechanism for businesses with a turnover of above G 1.25 million and corporations was also revised. Since October 2006, these businesses and corporations have to make three equal installments over the year to cover 75 percent of the previous year’s tax payments. This replaces a scheme that required the payment of a single installment of 1 percent of the previous year’s profits plus 1 percent of the current value of imports. Since FY 2007 is the first year during which these reforms are effective, the impact of the reforms will not be known until the full-year assessments have been completed.

Comparison of the income tax rate system before and after the 2006 reform

article image
Source: Lois Fiscales–Impôt sur le Revenu (MEF 2007) and Le Moniteur (Spécial No. 10, October 5, 2005).

74. As with revenue in Haiti in general, strengthening income tax administration and broadening the tax base hold the promise of significantly improving income tax productivity and thus raising tax collection. Weak tax administration and generous tax exemptions are the major causes for Haiti’s low income tax efficiency. To enlarge the tax base, corporate tax exemptions should be phased out and investment incentives streamlined, including by replacing tax holidays with investment allowances (Box 3). In addition, the personal income tax base could be expanded to include fringe or non-cash benefits received by an employee who is also a shareholder or director of a company.

75. Broadening the tax base could significantly increase revenue collection from direct taxes. If income tax efficiency was raised closer to the regional average as a consequence of these actions, revenue could rise significantly. As an illustration, increasing tax efficiency only marginally to 5 percent—assuming unchanged maximum tax rates of 30 percent for both personal and corporate income taxes—could boost revenues by about 1 percent of GDP.

Tax incentives in Haiti

According to the investment law, incentives can be granted by the Commission Interministérielle des Investissements to qualified investors in the following sectors: export and re-export, agriculture, arts, national industry, tourism and related services, businesses in free economic zones, and other sectors and special regimes.

Available incentives are fairly generous and include: (i) a 100 percent exemption from income taxes for up to 15 years, followed by a gradual phasing out of the exemptions over 6 years; (ii) accelerated depreciation of between 10 percent (buildings) and 100 percent per year (software, etc.); (iii) exemption from communal taxes for up to 15 years; (iv) exemption from taxes on wages and salaries and other direct taxes for up to 15 years; (v) duty free import of equipment; and (vi) exemption from verification fees.

Furthermore, special withholding rates of 20 percent are granted on payments to non-residents; some specific entities, for example offshore banks, non-profit organizations, and charitable organizations, benefit from duty free imports, exemption from taxes on wages and salaries, and income taxes; and loss-carry forwards are granted for up to 5 years.

Indirect taxes

Value-added tax (VAT)

76. Haiti collects almost 3 percent of GDP in the form of a VAT, which is about one-third of total revenues. Almost 75 percent of VAT is collected by the AGD at the boarder, reflecting Haiti’s open economy and the relative ease of collecting VAT at the point of import.

Main features of the VAT in Haiti

The VAT of 10 percent of the price of goods and services, including other duties and taxes is levied on goods (including agro-industrial), on the provision of services (including water, electricity, and local bank premiums and charges), and on imports, calculated at each stage in the production/distribution/import chain, with credit for tax paid on purchases. The VAT system allows for the deduction of tax collected on inputs (not investment goods) of a taxable operation from the tax applicable to that operation. Tax credits can be carried forward but no refund mechanism for excess credits exists.

The following goods are exempted from the VAT: (1) business persons with a turnover of less than G 100,000; (2) service providers with a turnover of less than G 100,000; (3) international services (transportation equipment maintenance); (4) interest on bank loans and on banking and insurance operations; (5) wages and education and health care expenses; (6) operations of nonprofit organizations; (7) exports and reexports; (8) imported petroleum products; (9) equipment and inputs for agriculture, livestock, and fisheries; and (10) supplies for education.

77. Haiti’s VAT collection efficiency of less than 30 percent is lower than that of other countries in the region, even though the gap is smaller than in the case of income tax efficiency.60 Middle income countries in the Western Hemisphere, with the exception of the Dominican Republic, exhibit on average a VAT efficiency of 45 percent (Figure 5). moreover, a wider comparison shows that Haiti’s consumption-based VAT efficiency ratio is lower than that of any other region (Table 4).

Table 3:

VAT efficiency ratio by region in percent

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Sources: IMF; FAD data base (2007), and IMF staff calculations.

The Efficiency ratio relates VAT collections to private consumption rather than GDP. Because of large foreign transfers, Haiti’s private consumption is almost 100 percent of GDP.

Figure 5:
Figure 5:

VAT efficiency in Haiti and Latin American middle income countries of similar size

Citation: IMF Staff Country Reports 2007, 292; 10.5089/9781451817690.002.A003

Note: Latest data available. BOL=Bolivia, DOM=Dominican Republic, ECU=Ecuador, GTM=Guatemala, HND=Honduras, HTI=Haiti, NIC=Nicaragua, PRY=Paraguay, SLV=El Salvador.Source: IMF, FAD data base and Staff calculations (2007).
Table 4:

Petroleum pricing and taxation, April 2007

(in US dollars per gallon)

article image
Source: Haitian authorities.

78. As with other taxes, Haiti’s low VAT efficiency is attributable to a narrow tax base and weak tax administration. VAT exemptions include international services (transportation equipment maintenance); interest on bank loans and on banking and insurance operations; wages and education and health care expenses; operations of nonprofit organizations; exports and re-exports; imported petroleum products; equipment and inputs for agriculture, livestock, and fisheries; and supplies for education; and non profit activities. By initially excluding imported inputs and subsequently exempting exports of final goods, the current VAT system also creates incentives for leakage of tax-exempt goods into the domestic economy.

79. A number of steps could be taken to broaden the tax base and address administrative weaknesses. To avoid revenue leakage, all imports should be subjected to standard VAT and exports zero rated, while introducing an efficient VAT refund mechanism (see below). The tax productivity could also increase over time, if the VAT threshold would be increased from currently G 30,000 to at least G 1 million (or about US$28,000). This would discharge the revenue authorities and allow them to reallocate their scarce human resources to focus on improving compliance of significant contributors. It is estimated that these measures could improve administration sufficiently to raises the VAT efficiency from 29 to 40 percent (i.e., closer to the regional average), thereby boosting revenue collection by about 1 percent of GDP.

80. A moderate adjustment of the standard VAT rate would also carry considerable revenue potential. At 10 percent, Haiti’s standard VAT rate remains among the lowest in the region. It is also significantly lower than the rate of its direct neighbor, the Dominican Republic, which in 2004 increased its VAT rate from 12 to 16 percent. An increase of the VAT rate from 10 percent to the regional average of 14 percent could be envisaged in the medium term, and would (even at the current low efficiency level of 29 percent) yield additional revenue of about 1 percent of GDP. As with the other tax rate increases, such an adjustment should only take place after tax administration and enforcement have been strengthened, to contain the risk of a pick-up in tax evasion and smuggling.

81. Haiti does not have a refund mechanism in the VAT system, which poses a burden on the competitiveness of exporters.61 If VAT refunds are not paid to exporters in full and within a reasonable time, the VAT becomes embedded in the exporter’s costs, reducing their competitive edge in international markets. In developing and transition economies, refund levels are typically 2-20 percent of gross VAT collections—significantly lower than in developed countries where refunds can exceed 40 percent of gross VAT collections.62 For Haiti, establishing a well-functioning refund system will be all the more important, once all imports, including inputs for the exporting sector, are subjected to the VAT. The refund system should be simple yet efficient. This could be achieved by (i) setting VAT registration threshold at a sufficiently high level to keep the number of taxpayers at manageable levels; and (ii) refunding exporters or enterprises that export a large share of their products promptly, while requiring taxpayers, as appropriate, to carry forward their excess credits for up to six months. Initially this could have a negative impact on revenue collection, but reduced leakage into the domestic market should help to increase revenue in the medium term.

Excise taxes

82. Excise taxes account for about 7 percent of total revenue, almost 90 percent of which are collected by the AGD. Excises apply to products like tobacco, alcoholic and carbonated beverages as well as on petroleum products, and imported vehicles. Because of their low income and price elasticities of demand, these products have traditionally been viewed as ideal candidates on efficiency grounds for revenue-generating excise taxes. In Haiti, about 50 percent of excises taxes are collected on petroleum products and 25 percent on imported vehicles.

83. To generate more revenue, the authorities could consider a moderate adjustment of some excise rates. Excise are applied at both ad-valorem and specific rates. Many of the specific taxes have remained largely unadjusted, and their real value has been eroded over time by the cumulative effects of inflation. The excise tax regime relating to tobacco products and alcoholic beverages was adjusted in 2003, when specific taxes were replaced by relatively low ad-valorem rates of 12 percent and 4-5 percent, respectively. The Dominican Republic levies ad-valorem excise taxes of 20 percent and 7.5 percent on tobacco and alcoholic beverages, respectively, on top of specific excises. Thus, there might be room to adjust these and other excises moderately, to levels that are closer to those of the Dominican Republic. For example, an upward adjustment of excise taxes by 20 percent could boost revenues by 0.6 percent of GDP.

Customs duty

84. Almost 50 percent of the revenues collected by the AGD are related to taxes on international trade. The majority of trade-related revenues is collected in the form of fees and charges, and less than 50 percent of trade-related revenues come from customs duties. The trade tariff structure currently includes six rates (0, 3, 5, 10, 15 and 58 per cent) which were lowered noticeably in the early 2000s. The maximum rate of 58 per cent applies to imports of gasoline (see below).

85. As a full member of the WTO (since 1996) and of CARICOM (since 2002) Haiti is committed to apply the rules of these organizations. 63 In June of this year, the Haitian government submitted to parliament a new customs code that introduces the transaction evaluation system required by the WTO. In its latest trade review of Haiti in 2003, the WTO noted that trade liberalization has been a main component of Haiti’s reforms and praised the simplification of its tariff structure. At the same time, the report highlighted other duties and charges (in particular inspection fees) as relatively high. However, Haiti generally applies tariffs below CARICOM’s common external tariff arrangements, which might need to be harmonized with the common external tariff regime. This could provide additional revenues to the government that have yet to be specified, albeit this would come at some cost for the economy in terms of efficiency in resource allocation.

Petroleum

86. All petroleum products consumed in Haiti are imported, and revenues on these products are collected at the point of entry. The gasoline prices are determined by an automatic, yet relatively complex pricing mechanism (Table 5). Government revenues from petroleum products comprise a combination of customs duty, excise taxes (fix and variable) and other charges.64 The government collects revenue equivalent to about 76 percent of the CIF landed costs on normal and premium gasoline, with most of the revenue collected in the form of customs duty. Diesel and kerosene are not subject to customs duty, and the government take on these products amounts to about 16 and 9 percent of their landed cost, respectively.

87. High ad-valorem rates on normal and premium gasoline make government revenue vulnerable to volatile world market prices. To reduce the volatility of revenue from petroleum products, the pricing mechanism should be changed to replace the ad-valorem customs duty with a revenue-neutral fixed excise tax. Because excises are domestic consumption taxes, replacing the high customs duty on gasoline (58 percent) with excises would eliminate the highest customs duty rate—reducing the number tariff rates from 6 to 5, and allow for more flexibility to possibly adjust external tariffs in line with WTO or CARICOM commitments without compromising revenue from petroleum products.

88. Gasoline prices in Haiti are the highest in the region (Figure 6a). Consumption data for Haiti shows that over the past five years, diesel consumption has risen, while consumption of other gasoline products stagnated or declined (Figure 6b). This reflects the increased demand for diesel for energy generation, but the substitution of normal gasoline with the less expensive diesel may also play a role. 65 A modest adjustment in diesel taxation could help to contain further substitution, and thus minimize potential losses of revenues from diverting demand from normal gasoline to diesel.

Figure 6:
Figure 6:

Gasoline prices and consumption

Citation: IMF Staff Country Reports 2007, 292; 10.5089/9781451817690.002.A003

Source: IMF staff estimates.

89. Compared with the Dominican Republic, gasoline prices are higher in Haiti, while diesel prices are lower (Figure 7). This suggests that a modest increase in diesel taxation could be introduced, with limited risks in terms of added incentives for smuggling. Increasing the fiscal take on diesel from 16 percent to about 25 percent would close the gap between diesel prices in the Dominican Republic and Haiti, and enhance government revenue by about 0.4 percent of GDP. However, before such an adjustment is implemented, its impact on low-income and vulnerable groups should be carefully studied, given that diesel is widely used for road transportation and self-generation of electricity.

Figure 7:
Figure 7:

Petroleum price comparison–Haiti and Dominican Republic

(in US dollars per gallon)

Citation: IMF Staff Country Reports 2007, 292; 10.5089/9781451817690.002.A003

Sources: IMF staff estimates.
“Nuisance taxes”

90. The authorities could also consider eliminating a number of so-called “nuisance taxes.”66 These are taxes and fees that generate insignificant revenue (less than 1 percent of GDP), but exact a considerable burden on taxpayers and tax authorities alike. Examples for nuisance taxes are the excise tax on matches, the wreckage tax, the withholding tax on entertainment expenses, and the burial permit fee, to name but a few. While eliminating these taxes will not increase revenue collection directly, it would free up the revenue administration’s scarce resources, thereby allowing their more efficient and productive use.

Summary of revenue measures

91. The implementation of a substantial part of the outlined tax administration and tax policy reforms could yield additional revenue of at least 3 percent of GDP in the medium term (Table 6). Broadening the tax base for income taxes by eliminating tax exemptions and adding fringe benefits to the taxable base could yield additional revenue of up to 1 percent of GDP. With respect to indirect taxes, raising the VAT rate closer to the regional average, boosting the fiscal take on diesel imports, and increasing excise taxes by about an average of 20 percent could yield additional revenue of up to 2 percent of GDP. Strengthening revenue administration, and thus improving tax and customs efficiency, could further improve collections across all forms of tax and custom revenues by an additional 1 percent of GDP.

Table 6:

Summary of revenue impact of tax administration and tax policy measures

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Source: IMF staff estimates.

C. Conclusions

92. Well-sequenced fiscal reforms could help increase revenue collection to the levels envisaged in the authorities’ economic program. Increasing revenue collection from slightly more than 10 percent of GDP to about 15 percent of GDP over the next 8 years would require addressing both weaknesses in revenue administration and tax policy. Major reform measures that could help achieve this target are summarized in Table 7. As a general principle, revenue administration reforms would have to precede measures that increase the fiscal pressure, to minimize the risks of increased evasion and smuggling.

Table 7:

Summary of reform measures by type of tax

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93. Encouragingly, revenue administration reforms are well under way. The DGI and the AGD have already developed reform plans and are working on their implementation. If implemented successfully, these reforms will improve the efficiency and effectiveness of internal and external revenue administration. This would allow the authorities to increase productivity across revenue sources, and thus bring productivity levels closer to international standards.

94. Fiscal reforms should be based on a comprehensive review of tax policies and be mindful of their social impact. A comprehensive review of the whole tax regime would help ensure consistency and efficiency across all revenue sources. In designing the fiscal reform program, it would also be important to understand how its elements affect the poor and other vulnerable groups, so as to allow the authorities to mitigate any adverse impact on their well-being. To this end, the authorities could usefully consider to conduct an integrated poverty and social impact analysis (PSIA), which is a basic technique to evaluate the effect of economic policies on vulnerable population subgroups.

95. An ambitious fiscal reform agenda will stretch Haiti’s limited implementation capacity and resources, and progress in revenue mobilization will therefore partly hinge on continued effective support from the international community. Over the past few years, Haiti has received technical assistance and financial support for tax policy and revenue administration from a number of donors, including the IMF, IDB and the US Treasury. Many of the recent measures, including the income tax reform, revision of the customs code, and the formulation of reform plans for the DGI and AGD have been supported by donor assistance. The continuation of this support and its effective coordination will be necessary to help overcome remaining capacity constraints, including the still limited pool of qualified human resources and poor technological and physical infrastructure.

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    • Export Citation

  • World Bank, 2005, Afghanistan. Managing Public Finances for Development, Report No. 34582-AF, Washington DC.

  • World Trade Organization (WTO), 2003, Haiti. Trade Policy Review, WT/TPR/S/99/Rev.1, Geneva.

40

By Gamal El-Masry and Katja Funke.

41

Recent donor conferences took place in November 2006 in Madrid and in March 2007 in Washington, D.C.

42

For a discussion of the impact of additional externally financed investment on current expenditure, see Gupta, Powell, and Yang (2006).

43

Hood, Husband, and Yu (2002).

44

According to the World Bank definition, LICs are countries with a per capita income of less than US$875. The LIC comparator group includes countries with a population of 5–15 million, similar to Haiti (9.1 million). These are: Benin, Burkina Faso, Cambodia, Chad, Guinea, Haiti, Kyrgyz Republic, Lao People’s Dem. Rep, Malawi, Mali, Niger, Papua New Guinea, Rwanda, Senegal, Sierra Leone, Tajikistan, Togo, Zambia, Zimbabwe. See World Bank (2005).

45

The comparator group of Western Hemisphere countries includes Bolivia, Dominican Republic, Ecuador, El Salvador, Guatemala, Honduras, Nicaragua, and Paraguay.

46

The latter are Bolivia and Ecuador (hydrocarbons), and Paraguay (hydroelectric power).

47

The post-conflict countries in our sample reach revenue levels of up to 20 percent of GDP, which confirms that a strong recovery of revenue collection is possible after conflict situations.

48

Similar in terms of population.

49

Excluding the resource-rich countries, namely Bolivia, Ecuador, and Paraguay.

50

While officially known as a turnover tax (TCA), this consumption tax is akin to a VAT.

51

In 2006, the external trade and services deficit was 22 and 7 percent of GDP, respectively. Accordingly, about 30 percent of domestic demand could not be covered by domestic production.

52

This sections draws on technical assistance that was provided to Haiti in 2005 by the IMF’s Fiscal Affairs Department (FAD) (IMF, 2006a).

53

IMF (2005).

54

See also IMF (2006b).

55

SIDONIA is a customs automation system developed by UNCTAD.

56

In general, tax efficiency measures are used to assess the performance of a particular tax. The perfectly efficient tax would lead to an efficiency ratio of 100 percent if a uniform tax rate is applied and tax collection is measured in percent of the tax base. In the case of an income tax, the appropriate tax base would be the GNP, and in the case of a consumption based tax like a VAT, the appropriate tax base would be domestic consumption. For this paper, income tax efficiency is measured as the ratio of income tax revenue (as a percent of GDP) to the sum of the highest personal and corporate in come tax rates. This measure is useful for crosscountry comparisons, but its level should not be interpreted as a gauge of absolute collection efficiency. The use of the sum of corporate and personal income tax rates in the denominator to calculate the efficiency ratio implies that income would have to be fully taxable under both corporate and personal income taxes to achieve an efficiency ratio of 100 percent, which is not a desirable feature in any income tax system.

57

See Cárdenas, Lora, and Mercer-Blackman (2005).

58

The average top tax rate for personal and cooperate income tax in Latin America, the Caribbean, and Bermuda is 30 percent. (see IMF, FAD data bases on “income tax rate”).

59

See Le Moniteur Spécial (No. 10, October 5, 2005).

60

VAT efficiency is calculated as total VAT revenue (as a percentage of GDP), divided by the VAT standard rate.

61

Imported inputs for export are VAT exempted but domestically purchased inputs are subject to VAT. Exporters can deduct any VAT credit from VAT obligations but no refund is granted if VAT credits exceed VAT obligations, which is often the case for companies that mainly export their products..

62

See Harrison and Krelove (2005).

63

While Haiti is a member of CARICOM, it has yet to apply the regulations of the CARICOM Single Market and Economy (CSME).

64

Variable excises are used to stabilize the retail pump price. They are adjusted for each oil delivery to maintain a stable retail pump price, unless the landed cost deviates by more than 5 percent from the previous shipment, in which case the retail pump price is raised or lowered accordingly.

65

Diesel purchased by the electric company Ed’H for the purpose of generating electricity is tax free.

66

See also IMF (2006a).

Same Series

Other IMF Content

Other Publishers

Cover IMF Staff Country Reports
Haiti: Selected Issues and Statistical Appendix
Author: International Monetary Fund
Volume/Issue:
Volume 2007: Issue 292
Publisher:
International Monetary Fund
ISBN:
9781451817690
ISSN:
1934-7685
Pages:
76
DOI:
https://doi.org/10.5089/9781451817690.002
  • View in gallery

    Government revenue in post-conflict countries (year of conflict in brackets)1

    Government Revenue (in percent of GDP)

  • View in gallery

    Central Government Operations Excluding Foreign Financed Projects

    (in percent of GDP)

  • View in gallery

    Revenue collection in a across-country comparison

    (in percent of GDP)

  • View in gallery

    Revenue structure in middle-income countries in the Western Hemisphere

    (percent of total revenue)

  • View in gallery

    Revenue gathered by collecting agency FY 2005/06

    Revenue collected by DGI (total G 6,571 million)

  • View in gallery

    VAT efficiency in Haiti and Latin American middle income countries of similar size

  • View in gallery

    Gasoline prices and consumption

  • View in gallery

    Petroleum price comparison–Haiti and Dominican Republic

    (in US dollars per gallon)

Government revenue in post-conflict countries (year of conflict in brackets)1

Government Revenue (in percent of GDP)

Central Government Operations Excluding Foreign Financed Projects

(in percent of GDP)

Revenue collection in a across-country comparison

(in percent of GDP)

Revenue structure in middle-income countries in the Western Hemisphere

(percent of total revenue)

Revenue gathered by collecting agency FY 2005/06

Revenue collected by DGI (total G 6,571 million)

VAT efficiency in Haiti and Latin American middle income countries of similar size

Gasoline prices and consumption

Petroleum price comparison–Haiti and Dominican Republic

(in US dollars per gallon)