EASTMOND PARRIS Tax

The DLP Tax Promises

2008-02-13T04:12:00.000-08:00

The following are the measures proposed in the Democratic Labour Party Manifesto. The proposals in the main are general so that the new Administration still needs to flesh out some of them further. Some proposals might already be in existence and therefore it is necessary that a review of the precise proposals should be undertaken.

Providing incentives to new and existing small players in the retail & distributive sector.

Forty (40) percent of all Government procurement requests for goods & services to be reserved for small and medium sized enterprises.

Expand the basket of goods significantly on which VAT would be removed including basic items and foods to promote good health.

Removal of VAT on utilities for households and businesses.

Removal of VAT on buiding supplies on houses valued up to $400, 000.

Waive duties and VAT on training and sports eqipment.

Increase the deduction for mortgages on houses up to $20, 000 per year.

The lowering or removal of tariffs on goods at ports of entry.

Waive duties on transport facilities for Sports Organisations.

Offer tax deductions on businesses that sponsor sports.

What the BLP would have Done

2008-02-05T08:55:00.000-08:00

The following sets out most of the tax measures that the Barbados Labour Party proposed in its Manifesto for the 2008 General Election:

The reverse tax credit (for individuals earning under the taxation threshhold: the proposal was to widen the eligibility for this credit by raising the income threshold from $13, 000 to $18, 000 over a three year period and raise the reverse tax credit from $800.00 to $1100.00 in 2008 to $1300.00 in 2009.

Lower the top tax rate of perosnal income tax from 35% to 25% for those on incomes of less than $7, 000 per month or $84,000 per annum. Further widen the lower tax band of 20% to be levied on the first $30, 000 of taxable income, up from $24, 200.

A tax break of up to $5000 out of untaxed income on health related equipment and activities.

The tax free personal allowance would be increased from $40,000 to $50, 000.

Remove import duty and VAT from items which support healthy eating habits.

Increase the child allowance from $1,000 to $2,000.

A pensioner whose sole income is the NIS pension will pay no tax.

The welfare stipend paid to severely disabled persons was raised to $96.00, it was proposed to raise it to $100.00.

Ensure that those with incomes under $25, 000 will receive a tax rebate on withholding taxes paid on interest.

Increase range of threshold for land tax from $125, 000 to $150, 000.

Increase the research and development allowance to 200%

Grant duty free concession on sporting equipment.

Following the Correct VAT Policy

2008-02-02T07:02:00.000-08:00

"At the same time, Thompson should not tamper with the VAT System, as indicated by the stated intentions of the Democratic Labour Party's (DLP) manifesto. This course of action will be frought with great danger, given the nature of the Value Added Tax (VAT). Many countries have found that too many zero-ratings in the VAT system increases the complexity and reduces the efficiency of VAT. It is more prudent to use VAT revenues to relieve the poverty of well-defined low income groups." Professor Michael Howard

A form of Value Added Tax now exists in some 120 countries. In the Caribbean this includes Jamaica and Trinidad & Tobago. Evidence of the modern Value Added Tax emerged in France in 1927 and was implemented in Barbados on January 1, 1997 under the Value Added Tax Act. The VAT replaced some 11 taxes and was imposed on goods and services at the following rates: Standard rate: 15%; Concessionary rate: 7.5% on holiday accommodation;0% (zero rated) on some items especially basic food items. In addressing the issue of rising food prices the Owen Arthur Administration in December 2007 sought to ensure that all basic food items in a wider basket of goods were zero-rated. Most basic food items had already been zero rated in any case. The DLP administration now proposes to widen the basket further and in addition has suggested that VAT would be removed from electricity bills.

What is the fundamental underpinning of the VAT? It is a low rate with a broad base -to restrict the base means that the fundamental premise upon which the VAT is constructed would be eroded. Professor Howard is therefore "reasoned and measured" when he suggests that such actions would be frought with danger.

There are essentiially two points that should be taken into account. Firstly the entire tax system must be examined as a whole as it relates to the consuming public. The tax reform policies of the Arthur Administration sought to ensure that Barbadians had more disposable income to stave of the high cost of living. The additional income was also linked to encouraging a degree of maturity by providing incentives for investing in such products as mutual funds and the credit union.

These tax policy intiatives included the reverse tax credit for those who do not even reach the threshhold for taxation, the increase of the threshold for the non-payment of land tax up to $125,000 and the reduction of income and corporation taxes. The Administration also agreed to forego the additional excise tax which would have been commensurate with the increase of fuel prices; a subsidy on fuel used by the Barbados Light & Power was also introduced so that Barbadians did not feel the full brunt of the impact of the escalation of oil prices to US$100. Thus means have been found of addressing some of the inequity that is usually associated with a VAT.

In addittion it is clear to most that Barbadians have become accustomed to a range of social services unknown to most developing countries and many developed ones as well. While these services might be free at the point of delivery they do have to be financed. Barbados like many countries in the region has suffered from a reduction of revenues by World Trade Organisation and other agreements which have a tariff reduction imperative. Given the other tax reduction initiatives outlined above, it would seem that we must be very careful about additional revenue losses.

A contraction of the tax base by the increase of zero rated items would result in a loss of revenue for which in the past, some countries have compensated by raising the tax rate. One would imagine that this is not the path that Barbados would wish to take.