Unmasking the Hidden Drain: How Revenue Weakness Is Fueling Foreign Exchange Leakages in Trinidad and Tobago

In a not so surprising reversal, the newly elected TTGovernment has announced plans to repeal the Trinidad and Tobago Revenue Authority Act (TTRA). Only 32.6% of public officers opted to transfer to the TTRA, which the Prime Minister called an 'abysmal failure'. Instead, resources will be redirected to the Board of Inland Revenue (BIR). This move raises questions about the state’s capacity to enforce unified tax reform at a time when customs and corporate and FX leakages remain unaddressed. T&T's economy is entering a paradox. While import volumes, retail activity, and consumer prices have surged post pandemic, government tax receipts have failed to keep pace. This divergence not only raises concerns about tax compliance and institutional effectiveness, but also points to a deeper structural problem i.e. mounting foreign exchange (FX) leakages that threaten macroeconomic stability and a key part of addressing this problem was the establishment of the TTRA.

How The Establishment of The TTRA Is Linked To Fixing T&T's Macro Problems.

Between 2015 and 2024, T&T's total imports grew at a median rate of 2.34% per yr and an avg rate of 0.8% annually. However, import duty collections were essentially flat, with a median growth of -0.02% and an avg decline of -0.5% annually. Even in years when imports surged such as 2021 to 2023 duties failed to respond. The effective import duty rate (EIDR), which once exceeded 6%, has now fallen to an average of just over 5%.

Source - Central Statistical Office.

A yoy comparison of import growth and duty growth shows frequent divergence, especially during periods of post-pandemic recovery. In 2022 and 2023, imports grew by more than 30%, while import duties barely moved. This disconnect points to valuation suppression (contracted CIF values), expansion of exemptions, or enforcement failure at customs.

The Global Supply Chain Pressure Index (GSCPI) confirms that global trade frictions have eased significantly by 2025. As of April 2025 the reading of -0.29 indicates that supply chains are functioning better than average particularly since the index began to normalize since late 2022. Thus, flat duty collections cannot be blamed on global bottlenecks.

Source - NY FED

Compounded with the above information, the Index of Industrial Sales (ex energy) a weighted measure of real domestic output, has declined or stagnated since 2015. In contrast, the Index of Retail Sales (IRS) has steadily risen, climbing from 197 in 2010 to over 376 by 2025 highlighting that consumer demand has continued to grow, even as domestic output fell behind.

Meanwhile, the Building Materials Index (BMI) surged from 240 in 2020 to over 311 by 2025 reflecting elevated import costs. Yet, the Producer Price Index (PPI) remained relatively flat, rising only modestly from 604 in 2020 to 668 in 2025. This disconnect suggests that firms may have absorbed rising costs without expanding output or worse, that imports increasingly replaced local inputs without corresponding revenue gains and there is evidence of the latter point.

Source - CSO

While retail activity surged, non-oil corporate income tax remained lackluster. For example,

• In 2018, non-oil companies paid TT$8.8 billion, the RSI was flat.

• In 2023, despite a higher RSI and stronger import activity, non-oil taxes were just TT$9.6 billion below inflation-adjusted expectations.
  

Source - CSO & Ministry of Finance

The decline in the effective tax base during a nominal consumption boom suggests strategic underreporting or avoidance, through inflated expenses, loss carryforwards, or deferrals.

So we POSSIBLY have inefficiencies in both duties and tax collection. This dual underreporting of both imports and domestic profits fuels a deeper macroeconomic problem: foreign exchange (FX) leakage. Here's how it happens,

• When companies understate the value of imports, they pay less tax and claim they need fewer US dollars. But in reality, they still pay the full price just informally, using unofficial FX sources. So, foreign currency leaves the country, but it’s not tracked properly by the Central Bank.
  

• At the same time, when companies underreport profits, they shift money overseas in disguised ways. For example, they might pay inflated invoices to a related company abroad for 'consulting' or 'management' services, or book large royalty fees for the use of intellectual property. These expenses reduce the local taxable profit on paper, even though the money stays within the same corporate group. As a result, profits made in Trinidad are quietly moved abroad without paying fair local taxes.
  

This creates a double leakages:

• FX leaks out of the economy in ways that are hidden from the system.

• Tax revenue stays low, even when companies are doing well.
  

These dynamics are not isolated. They reinforce and amplify the issues discussed in the previous sections, suppressed duties despite import growth, weak non-oil corporate taxes despite booming retail, and falling domestic output despite rising material prices. The TTRA was designed to unify tax/customs, improve audit power, and modernize enforcement. Its repeal risks continuing the status quo, fragmented tax systems and limited technological advancement. More importantly, the repeal sends a signal of political division over fiscal modernization. Investors and multilateral partners (e.g. IMF) may interpret this as reform backtracking, especially given the IMF's clear support for the TTRA. Added to that, the lack of proper institutional record keeping would likely lead to higher term premiums in the bond market if investors view the government's fiscal and FX buffers as inadequate. A unified and simplified tax collection system reduces those perceived risks.

Source - IMF

The new Government will now focus on strengthening the existing BIR, appointing more commissioners and establishing a corporate secretariat for governance. However, without a unified TTRA to merge tax and customs systems, modern enforcement gaps such as audit capacity, inter-agency data sharing, and risk profiling the issues in revenue collections are likely to persist. Until customs enforcement and corporate compliance are upgraded, ideally through a unified authority, the country will continue leaking revenue and FX. Whether through the TTRA or a strengthened BIR, the next phase of fiscal reform must close the operational gaps that allow growth to escape untaxed and untracked.