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December 14
11:09 2018

It has been no secret that the Belize Chamber of Commerce and Industry (BCCI) has been advocating in favor of a comprehensive tax reform for some time now. In large part, the BCCI’s advocacy is not based on whimsical notions, but rather is supported by multiple empirical research works and recommendations of economists who advise of the prudence of tax reforms.

However, the call for tax reform also comes from the reality that Belize, over the last two decades, has signed onto several international commitments and obligations that effectively demand the same. More specially, Belize attracts investments via three well-known programs and their respective legislations: the Fiscal Incentives Act, the Export Processing Zone Act, and the Free Zones Act. Each of these instruments provides tax-related benefits and exemptions as a means of attracting investors.

Speaking specifically to the Export Processing Zone (EPZ) regime, section 9 of the Act states: “an EPZ business shall be permitted to import such quantity of goods and supplies free of customs duty, tariffs, consumptions taxes, excise taxes, trade turnover taxes or other taxes, as are necessary for the production and operation of the business and for the sole use thereof.”

The Act, in Section 7(3), also makes clear that the sales from any such business could only be to the foreign markets. It reads that the EPZ Committee “may, with the approval of the Ministries listed in subsection (2) of this section, grant a Certificate of Compliance if the proposed business enterprise (a) will produce goods and/or services solely for export or sale to buyers who are not residents of Belize, except as provided in section 8(3) of this Act.”

The section-8 exception speaks to the potential of obtaining waivers and making sales to other EPZs. Beyond that, however, the program is targeted at exporters, and therein lies the rub from the WTO perspective. In a recent World Trade Organization (WTO) review, it was once again highlighted that the presence of the aforementioned regimes violates the agreements signed by Belize.

Referencing the regimes, the WTO stated: “These programmes involve prohibited subsidies under Article 3 of the Agreement on Subsidies and Countervailing Measures (SCM Agreement) of the WTO. Belize requested and was granted by the SCM Committee annual extensions of the transition period for the elimination of export subsidies under Article 27.4 of the SCM Agreement. … export subsidies should have been phased out by 31 December 2015.”

Article 3 of the SCM agreement speaks against “subsidies contingent, in law or in fact, whether solely or as one of several other conditions, upon export performance.” Therefore, this brings the EPZ Act, for instance, into direct conflict with the international obligation. It is on this basis that there have been ongoing conversations surrounding a newly proposed bill to repeal and replace the EPZ Act with what is being called the Designed Processing Area (DPA) Act.

Now, there are many valid equitability arguments that could be made as it pertains to demands being placed on developing countries to abandon systems that had helped us to keep up with more developed countries; however, that’s not the focus of this series. Instead, considering that the train cannot be stopped or delayed indefinitely, it is useful for our collective energies to be placed on practical remedies that would still keep our domestic and foreign investors competitive with the rest of the world, while complying with the likes of the SCM agreements and more. It is this latter point that would be the topical focus of this discussion for the next few weeks. The purpose of this first installment was to simply frame the underlying issues.

However, a useful point to close with here, however, is an observation made by an Inter-American Development Bank (IDB) 2015 publication, entitled “Rekindling Economic Growth in Belize” which stated: “High trade taxes not only constitute a barrier to profitability and private investment, but they also impede investment in relatively desirable activities (activities of greater competitiveness and with higher social returns) more than other activities. Firms dedicate significant attention to obtaining exemptions from the tax burden and few important investments take place in the economy without tax and trade incentives that remove the barrier. The most significant exports outside of tourism—sugar, citrus, papaya, shrimp, and BPOs—rely on tax and trade exemptions. Successful exporters are underrepresented in the private sector. Along with access to finance, tax rates are rated as the biggest obstacle in the economy.”

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