In the last Business Perspective (BP) article we concluded with reference to the need for a proactive approach to the tax reform efforts. As was pointed out in that article, in many instances Belize finds itself virtually forced to make certain tax policy changes in response to one international obligation or the other. The more recent examples include the repeal and replacement of the Export Processing Zone (EPZ) Act with the Designated Processing Areas (DPA) regime. The same could be said of the recent amendments to the International Business Companies (IBC) Act.
Clearly, such reactive approaches could be viewed as problematic considering that it is very likely that those external forces have very little concern regarding Belize’s stage of development. Fundamentally, while one would have to be careful to not throw out the proverbial baby with the bath water, it is unreasonable to expect that our idiosyncratic development needs could appropriately be met in this way.
This, however, begs the question as to what, then, is the policy direction worth following? What framework should inform the inclination’s of Belize’s tax reform policy? For this, one could look to the Growth and Development Strategy (GSDS) 2016 – 2020. Particularly, the GSDS’s Necessary Condition (NC) 1.3.4 speaks to “Promoting Inclusive Growth (Growth with Equity)”. The term “Inclusive Growth” speaks to a framework in which economic growth is approached from a standpoint that seeks to minimize inequality. Under this NC, the national strategy states: “The Government of Belize will actively pursue several interrelated actions to improve the likelihood that growth will benefit the poor. Generally, the pursuit of more active industrial policy will facilitate the provision of more employment and wealth-generating opportunities for poor and vulnerable persons and communities. Strategies to improve access to development funding, to provide business development support, and to encourage cooperation, among others, will have a strong focus on enhancing opportunities for the poor and vulnerable to participate in productive activity.”
This goal is buttressed by three sub strategies; namely, to “Identify and develop activities that can provide significant employment and earning opportunities to the poor and the vulnerable population; to also “Pursue inclusive strategies in the development of the tourism industry”, and “Intensify efforts to raise earnings from employment in order to reduce the prevalence of the working poor”.
The fact that Inclusive Growth principles had found its way into the GSDS’s first pillar (achieving “Optimal National Income and Investment”) is a pivotal step in the right direction, because as can be gleaned from the foregoing, Inclusive Growth goes beyond the simply targeting growth in Gross Domestic Product (GDP). Instead, it looks at how said growth is achieved, seeking to ensure that it is obtained in the most equitable way possible.
Now, the conversation in this particular series is about tax reform. Consequently, it may be tempting to ask what the government’s incorporation of this set of principles has to do with the tax structure employed. Well, simply put, instead of tax changes being inspired by external variables, the economy would be better served by that proactive approach that we have been talking about. That said forward-looking approach ought to be informed more predominantly by our own stated strategic goals.
This is a point that even the OECD had noted: “Governments can achieve tax and transfer policies for inclusive growth while also supporting the revenue-raising capacity of the tax system and ensuring the sustainability of public spending.” Said differently, there are comprehensive fiscal policy decisions that are considered useful for achieving inclusive growth. A closer look at these sorts of decisions is where we next turn our attention.