US embassy cable - 05PORTAUPRINCE1326

UNCLAS PORT AU PRINCE 001326 
 
SIPDIS 
 
STATE FOR WHA/CAR 
EB/IFD/OMA 
EB/IFD/ODF 
WHA/EPSC 
INR/IAA/MAC 
STATE PASS TO AID FOR LAC/CAR 
TREASURY FOR ALLEN RODRIGUEZ, GREGORY BERGER, WILLIAM 
BALDRIDGE, LARRY MCDONALD 
USDOC FOR 4322/ITA/MAN/WH/OLAC/ (SMITH, S.) 
 
E.O. 12958: N/A 
TAGS: EFIN, ECON, PGOV, HA 
SUBJECT: Haitian Tax Collection Trails Projections 
 
 
1.  SUMMARY:  Revenue collection for the first half of the 
Haitian fiscal year is about 3.3 percent behind projections, 
due mostly to slower than expected internal tax collection 
(income tax and VAT).  The Director General of Taxation 
attributes the shortfall to on-going violence in Port-au- 
Prince and delays in payment of taxes by several large 
parastatals.  Reduced government revenue will exacerbate 
weaknesses in the economy and have political ramifications 
by slowing spending on much-needed development projects and 
potentially increasing public frustration with government 
performance.  END SUMMARY. 
 
Total Revenue Collection Down 
----------------------------- 
2.  Figures provided to the Econ section by the Ministry of 
Economy and Finance show that revenue collection for the 
first half of fiscal year 2005 is about 3.3 percent behind 
projections, at approximately USD 203.0 million instead of 
the projected 209.9 million. (NOTE:  The Haitian fiscal year 
runs from October 1 to September 30 and figures are 
converted into USD at the rate of 38 gourdes to 1 USD.) 
 
Tax Collection 11.6 Percent Below Target 
---------------------------------------- 
3.  Most of the deficit is caused by lower than expected 
internal tax collection (mostly income tax and VAT), at 
136.7 million, rather than the projected 154.6 million, an 
11.6 percent deficit.  Another major component, customs 
collection, trails projections by a smaller 3.3 percent at 
53.4 million instead of 55.2 million.  Other sources of 
revenue were mostly higher, partially offsetting the low tax 
collection numbers. 
 
4.  Tax collection trailed projections for each of the first 
5 months of the fiscal year; only in the sixth month, March, 
did revenues slightly exceed projections by about 1 percent. 
Customs collection lagged strongly in the first quarter of 
the fiscal year, but has since rebounded in the second 
quarter and exceeded projections. 
 
Violence and Deadbeat Parastatals to Blame 
------------------------------------------ 
5.  The Director General of Taxation told Econ Counselor 
that the reduction in tax collection could be attributed to 
two factors:  first, the on-going violence in Port-au-Prince 
that has slowed business activity and made tax collection 
more difficult; and second, the delays in payment of taxes 
by several large parastatals, such as the electricity 
company.  Customs collection was similarly effected by 
violence, particularly around the port area in Port-au- 
Prince in the first quarter of the fiscal year, and by a 
Customs Department strike in December. 
 
6.  COMMENT:  Reduced government revenue will exacerbate 
weaknesses already present in the economy and will have 
political ramifications.  Revenue shortfalls will likely 
slow implementation of much-needed development projects, 
such as road improvements.  Unfortunately, the rate of aid 
disbursement, particularly for projects, is also behind what 
the IGOH had anticipated.  The IGOH cites budget problems as 
one of the reasons it is slow to provide support to the 
state-run electricity company, thus causing power cuts in 
Port-au-Prince, worsening the frustration of the public with 
the performance of the current government.  END COMMENT.