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IMF Calls For Value Added Tax In Aruba

Aruba has certainly been adversely affected by the economic downturn that began in 2008. The island’s tourist-dependent economy has suffered along with the countries whose tourists spend time and money on vacations.  The island also suffered from the shutdown of the Valero oil refinery in 2009.The Aruban government has limited the impact on the island’s residents by cutting an unpopular business turnover tax while shoring up social services and pensions. This has understandably caused an increase in the island’s continuing budget deficit.

Last week, the International Monetary Fund(IMF) suggested that the Aruban government consider “revenue measures” to decrease the deficit. “Revenue measures of course means more taxes. The IMF is recommending a Value Added Tax(VAT).

The report acknowledges  that Aruba is “pen economy with one of the highest living standards in the Caribbean and a history of policies that have successfully safeguarded macroeconomic stability over the years.” In 2009, however, overall GDP decreased 7 1/2 percent, resulting in Aruba facing one of the most severe slumps in the Caribbean. The unemployment rate peaked at 11.3 percent, according t the IMF, although the economy is now showing a gradual improvement. There is concern, however that improvement in the tourism industry will be gradual, and insufficient to quickly solve Aruba’s deficit issues.

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