Some are surprised that the Government has increased taxes in the recent budget. However this was to be expected since the direction that they are carrying us requires them to keep increasing taxes. When the DLP administration formed the Government in 2008, they found themselves on an unsustainable economic path, where they had to raise massive revenues to manage the level of debt left by the previous administration.
The DLP had two choices – to govern by faith or by fear. The DLP could have had faith in us by lowering taxes as Owen Arthur had done, and for which we recommended that he receive a knighthood. The second was to distrust us and burden us with ever increasing taxes while hoping for a miracle. The miracle was to be in the form of Government revenues benefitting from a significant improvement in the global financial situation. The Government chose the latter path.
Since increasing taxes is consistent with governing by fear, we should not be surprised whenever they are raised. Rather, we should be surprised whenever that are not raised. The principal problem with the current administration’s economic strategy is that they simply will not listen to good advice.
Two years ago, Solutions Barbados published a tax plan that is workable and fair to all. VAT has proven to be an unfair and unworkable tax system and will be abolished. The Government procurement system has been corrupted to the point where is has negatively affected the national economy. Highly qualified companies are excluded from participating in the national economy whenever the Government gives its favoured companies no-bid contracts. Those excluded may be challenged to pay taxes and maintain their employees. Therefore, all taxes owed to Government will be forgiven.
With everyone starting from a clean slate, everyone participating in Barbados’ economy will be required to pay their taxes. Those businesses who choose not to pay taxes will be competing unfairly in Barbados’ economy. Therefore, non-payment of taxes will not be tolerated. Tax avoiders and defaulters will be required to pay a fine of 10 times the unpaid amount. However, for this system to be fair and workable, taxes must be low, easy to calculate, easy to pay and easy to audit. The Government will also need additional resources to carry out the necessary audits.
Personal taxes will be reduced to 10% of gross earnings with no deductions. With deductions eliminated, public workers will no longer pay income tax. Currently, the private sector pays the Government the taxes owed by public workers. The Government does not actually give this amount to public workers; instead, public workers get to see the amount on their pay slips, and then see it deducted. Therefore, what the private sector actually pays for is for Government accounts offices to manage this illusion on 25,000 public workers and their unions. Those accounting resources will be used to carry out the new audits.
Currently, businesses pay corporate taxes on their net profits. With this current system, it is possible to run a successful business for decades without paying any taxes. Our plan is to close this loophole by reducing corporate taxes to 10% on gross revenues with no deductions.
Businesses with high net profits are expected to pay the corporate tax out of their profits. Therefore, the price of their products should not increase. Businesses with no net profits are expected to add the tax to the cost of their products. Business with marginal net profits are expected to use a combination of the methods described above.
The obvious question is, what prevents businesses with high net profits to protect those profits and add the tax to the cost of their products? The answer is that the market normally punishes such greed, since their products will be more expensive than their competitors.
Grenville Phillips II is the founder of Solutions Barbados and can be reached at NextParty246@gmail.com