This balance between Govt and people

There’s a sense of foreboding as the country anxiously awaits the details of the 2014/2015 Budget still locked tightly away in Minister of Finance Chris Sinckler’s black box. In the midst of Independence celebrations and with the Yuletide season fast approaching, Barbadians are desperate for some relief after another tough year of increased taxes, high utility bills and rising food costs –– all on static pay cheques.

But, alas, there’s unlikely to be any respite; and no basket of goodies appears on the way, with the Central Bank’s report on economic performance for the last quarter signalling that Barbados is still a way off from meeting its targets under the Government’s fiscal adjustment strategy, and that further adjustments will be needed to boost revenue and reduce spending. Last week, the Minister of Finance publicly declared there would be no major tax increases, but in the same breath raised concern after serving notice the Government would be taking a second look at tax exemptions, as recommended by the International Monetary Fund.

In a report entitled A Tax Reform Road Map For Simplicity And Revenue Buoyancy, the Washington-based financial body concluded that while there was a range of meaningful taxes, there was too great a slew of allowances, deductions and exemptions –– the net result of which was Government’s losing substantial revenue at a time when its coffers were running dry.

A major example presented was the Value Added Tax system. The IMF said while VAT could yield significant revenue, its base was being seriously eroded by extensive domestic zero rating and exemptions. It made a case for a reformed VAT with a single rate,  and with few standard exemptions.

Mr Sinckler said this presented the Government with a number of options.

“Do you want to move the rate from 17.5 to 20 per cent, or do you want to bring the rate back down to 15, but broaden the tax base?”

We wonder what action the Government will take, and how it will impact already hard-pressed citizens. The business of taxing is mostly understood by economic experts, and so it immediately raises the need for the Ministry of Finance to clearly explain what restructuring of the tax system will mean for private citizens and businesses –– big and small. While Mr Sinckler is insistent the Government will focus on improving its collection of taxes rather than on raising current levels, we cannot help but be curious how much longer this administration will –– or can –– delay a major overhaul of the tax system.

We would expect that with any of the proposed IMF changes, Barbadians who honestly pay their taxes would in many a case have to pull their pockets even more, or receive lower refunds. Take, for example, the income tax measure where everybody starts with a $25,000 deduction. If you are earning $30,000 a year, $25,000 of it is not taxed, and your taxable income is estimated at $5,000.

If that allowance is removed or reduced, the taxpayer will have his disposable income cut. For some that simply is not an option.

On the other hand, the Ministry of Finance could well argue that it cannot continue to fund relatively free health care, free sanitation services and subsidized bus fares, while at the same time forgo revenue by maintaining the current level of allowances and tax exemptions. It is also prudent that the Government not delay inevitable reform in the restructuring of the economy, which has been in recession since the onset of the global downturn.

As we await the Government’s plan, we earnestly hope that the powers that be will carefully balance their decisions on ensuring a decent standard of living for all Barbadians and the preservation of our strong social system, while building a sustainable economic structure to return the island to growth sooner rather than later –– and for years to come.

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