The re-introduction of zero-rating on these items runs contrary to the Matalon Committee recommendations on tax reform, while we would express reservations over the feasibility of determining the GCT classification of any goods or services based on the consideration paid. In practice this can provide much scope for abuse and sets a bad precedent.

The minister is placing significant reliance on realising his revenue targets on improvements in administration, enforcement and collection. There has been a significant amount of discussion on the nefarious "underground economy", which is said to account for a significant amount of tax leakage.

This year, the focus will be on enhanced audits of large companies and collection of troublesome arrears. Forensic audits will be pursued for targeted companies, aided by "international help" which has been secured for the purpose. A programme involving 100 specially trained officers which commenced in 2005/06 and which was successful in collecting an incremental $5.6 billion in arrears (versus $5 billion that was targeted) is to be continued this year.

LAST YEAR'S TAX PACKAGE

Bearing in mind that the tax package last year was designed to raise an additional $9.6 billion in taxes, the expectation that we will be able to achieve a 20 per cent increase this year, having narrowed the base through the re-introduction of zero-rating for a number of items and no new taxes must be optimistic.

For this reason and given the Government's commitment to holding the budget deficit to within 2.5 per cent of gross domestic product, we would not be surprised if the Government were to revisit the financing of the budget early in the fiscal year. One clue as to where the Government may look is found in the minister alluding to the "need to speak to a more rational system and which will mean perhaps that some sectors will have to give up special privileges (that) they have had."

ATTENTION NEEDED

He mentioned specifically that attention will need to be paid to the "complex web of incentives granted to various sectors and sub-sectors" and gave as a specific example the tourism sector, which had its GCT burden increase significantly in last year's budget. This is one aspect of the Matalon Committee suite of recommendations which has not yet been addressed in full since only the tourism sector has been affected thus far.

Perhaps when the tax reform programme is revisited, other recommendations will also be addressed, including equalising the corporate income tax rate with the individual rate, elimination of tax on dividends paid by non-listed companies, and the removal of certain of the payroll taxes.

The 500 pound gorilla represented by the need to adjust taxation policy in relation to petroleum products will also have to be addressed once and for all at some point. The policy must become an effective instrument in influencing consumption levels of the country's largest import.