A case for axing personal income tax
In a complete reversal of the former United Progressive Party (UPP) government’s fiscal policy, the Gaston Browne-led Antigua and Barbuda Labour Party (ABLP) administration last week announced the abolition of personal income tax (PIT), effective April, 2016, thereby fulfilling a promise made during the 2014 general election campaign.
“Abolishing personal income tax is an important reform,” Prime Minister Browne told Parliament as he presented the government’s 2016-2017 Budget. “Not only will it put more money in the pockets of the people, so that they can save or spend more for the benefit of the economy as whole, it will help to re-establish our country as one of the most competitive in the Caribbean and beyond.”
The decision frees up an additional $30 million in disposable income to support boosting economic activity. Mr Browne noted that previous ABLP administrations had governed Antigua and Barbuda successfully for 27 years without personal income tax. He also said that the cost of collecting the tax, the difficulty of enforcement and its unfairness, made its removal a sensible decision.
Mr Browne makes some valid points, which are supported by hard evidence. During Antigua and Barbuda’s boom years, during the 1980s and 1990s, there were many nationals who simultaneously held down two jobs –– the main one during the day, the other for a few hours at night. Money was flowing to such an extent that hundreds of nationals from nearby countries were attracted to Antigua for employment.
People were generally willing to work longer and harder because, with no income tax to pay, the average person could see all that he or she was working for, instead of feeling that he or she was working more for the government than for himself or herself. The same attitude is evident among workers in the Cayman Islands where there is no personal income tax.
This evidence confirms what has been known for a long time. Namely, that persons are primarily driven by self-interest, and once they can see what is in it for them, they will respond favourably.
From the pronouncements of both Barbadian political parties, it seems the abolition of personal income tax has never been seriously considered as a policy option. It is about time that the issue is placed firmly on the national agenda for public discussion.
As it stands, Barbadians believe they are too heavily taxed. Indeed, if a random survey were to be conducted now, most people would probably
say they feel they are working more for Government than themselves.
This perception represents a major obstacle to efforts to boost lagging productivity which policymakers have identified as a major national problem. What also is compounding the problem is a growing feeling among Barbadians that even though the Government is deducting more tax from their income, they are not seeing the benefits like before.
For example, many roads are in a terrible state of disrepair, free university education had ended, and medications through Barbados Drug Service are
no longer free as they used to be.
Personal income tax also is generally unfair in its application in the Caribbean –– a point which Prime Minister Browne made with reference to Antigua and Barbuda. It is discriminatory because it primarily targets persons in formal employment who are easy to reach. However, the thousands who make a decent living in the informal sector, often earning a lot more than persons in the formal sector, constantly elude the radar screen of tax authorities.
As a result, a situation exists where persons in the informal economy are benefiting from public services paid for with the taxes taken from persons in the formal economy.
For some time now, countries around the world have been moving away from direct to indirect taxation. It would make sense for Barbados to scrap personal income tax and raise the Value Added Tax (VAT) to 20 per cent as its main revenue centre for Government. It would be a winning move.
Every person on the island, whether working in the formal or informal economy, has to pay VAT because they have to purchase goods and services to sustain life. With income tax out of the way, tax authorities then could focus their resources on the more efficient collection of VAT.
Some naturally will say that abolishing income tax cannot work. Adopting this stance is to close the door on possibilities. Converting possibilities into realities is a major source of success in the modern dynamic world in which we live. It requires a mindset that is receptive to new ideas and demonstrates a willingness to put them to the test.
Those who choose to live in a world defined by “can’t” run the risk of being left behind while the rest of the world moves ahead.