Dear Editor,
As Finance Minister Jordan puts together his Tax Reform Committee here are some suggestions the members might want to consider if they are looking for a tax regime that favours the working class while still having a negligible effect on revenue generation. Reduce the VAT minimally. The government has promised to reduce the VAT. While I would not recommend a reduction, in the prevailing circumstances, it becomes a prudent measure when one considers the political dimensions and ramifications. Therefore, it would be wise for the Minister to advise his government to shift the rate downwards conservatively to around one or two percentage points. This measured approach would have to be sold as a package that highlights the other tax measures mentioned below that would improve the populace’s economic circumstances.
Favour reducing direct taxes over indirect taxes. Direct taxes are out of favour in high performing economies with strong productivity levels around the world and in the mindsets of many multilateral financial institutions such as the International Monetary Fund (IMF), the Organization of Economic Cooperation and Development (OECD) and the European Commission. Direct taxes are levied directly on business profit, personal income, wealth and property (eg, income taxes, corporation taxes, capital gains, etc) while indirect taxes are levied indirectly on the expenditures that income and wealth finance (eg, VAT, consumption, sales tax, etc). This shift acknowledges the assumption that hard work, innovation and risk should not be heavily taxed and the income saved will spur spending through more disposable income and reduce costs on businesses thus making them more competitive. This will mean reducing income and corporation taxes, and a 5-8% reduction in both immediately would not affect the tax dynamics on the income side much.
Lower the flat tax rate on environmentally friendly (green vehicles) and new model vehicles. A flat rate duty – or around $2 million – should be applied to new vehicles (not used vehicles) that were manufactured in the current and most recent years. Similarly, ‘green’ vehicles that meet generally accepted standards of energy efficiency and air pollution emissions should also receive a lower flat rate of duty.
Eliminate VAT on restaurant purchases. There are already 150 items, mostly basic household goods, that are zero rated, and by Minister Jordan’s own admission this leaves little room to add further goods, I would suggest a recommendation offered by Banks DIH Chairman Clifford Reis to remove the VAT from restaurant purchases. Many lower income and working class citizens patronise restaurants on a daily basis and the addition of a 16% tax is burdensome. Moreover, most restaurant products fall into the list of items already zero-rated. However, once those same items are cooked they currently attract the VAT. Uncooked or cooked, the items are the same and thus should not be taxed.
Reduce tariffs on imported meats. The current tariff regime on imported meats (eg, chicken, cow-heel, beef, pork) has not resulted in the expansion of the domestic industries as expected. Furthermore, it has led to a negative impact on consumers through high prices and retail costs for meat products. The government could increase consumer disposable income significantly by removing the tariffs on such imports, which, in turn, would bolster consumer confidence. This revised policy would lead to business development, expanded employment opportunities, and increased tax revenues for the government.
Yours faithfully,
Clinton Urling
