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Caribbean Islands Table of Contents

Caribbean Islands


Total revenue in 1985 was US$583 million. The figure was US$240 million short of the expected expenditure, thus creating a budget deficit equal to 29 percent of the total budget and 11.6 percent of GDP. In 1985, 84 percent of total revenues came from tax revenues, comprising mainly income tax, consumption duties, and stamp duties. In contrast to previous policy, budget deficits were commonly being financed through external financing. In 1985, over 90 percent of the funds to pay for the budget deficit came from external financing, an unusually high percentage. The United States provided 39 percent of external loans, followed by France, Britain, the Netherlands, Japan, and the Federal Republic of Germany (West Germany). Multilateral lending agencies also financed a significant portion of revenue short-falls.

In the mid-1980s, the Seaga government enacted a comprehensive tax reform package in which it sought to simplify the reporting system, reduce the number of taxpayers, lessen evasion, and lower marginal rates; all of these problems were thought to discourage private sector initiative. The key feature of the revised system, effective January 1, 1986, was complete tax relief for the first US$1,500 of annual income for all taxpayers, which was expected to relieve 150,000 citizens of paying taxes. After the tax-free income level, all were taxed at a flat rate of 33.3 percent; in addition, interest on savings was taxed for the first time. Corporate taxes were also cut to under 33.3 percent during the second phase of the reform program from a typical top rate of 45 percent. The early results of the reform indicated that annual tax revenues would increase as a result of better collection. Other ad hoc taxes proposed to increase government revenues in the mid-1980s frequently caused heated political debate. Most controversial were new taxes for license plates and a proposed annual tax on satellite dishes.

Data as of November 1987