#BTColumn – We all pay taxes one way or the other

Disclaimer: The views and opinions expressed by the author(s) do not represent the official position of Barbados TODAY.

by Ann Walcott

I am heartily sick and tired of the right-wing narrative coming from Barbados Labour Party (BLP) advocates on social media comments that only the well-off pay taxes and the rest of us are free loaders. I intend today to clear up this misinformation, which is used to hurt and embarrass those in the lower economic brackets and allows the elites to lobby for MORE income tax reductions without feeling guilty.

Ever since Ronald Reagan made his famous anti worker “welfare queen” speech to kick off the “tax cut, tax cut, more tax cuts policy” of the Republican party in the United States, later taken up by the Tories under Margaret Thatcher, then spread to lesser developed countries as the panacea for all economic problems by international organisations such as World Bank and IMF, this has been their mantra.

Last year the IMF reversed course to surprisingly criticise a G7 nation’s budget, calling the bluff on Liz Truss’s tax reduction policy and blowing the fallacy that this would produce growth, pointing out that cutting marginal tax rates on top income and corporation taxes only increases inequality.

The lowering of income and corporation tax rates at the top, whilst replacing the lost revenue with indirect taxes (hidden) taxes on goods and services used by ALL citizens, has been the policy of the Barbados Labour Party since Owen Arthur introduced VAT in 1997.

When I criticised VAT in a letter to the Nation that April, I received a surprising phone call from a colleague of my father’s, a very senior member of the BLP and a former member of Tom Adams’ cabinet, who explained that once the revenue from VAT poured into the Treasury, the BLP would be able to bring down income tax rates to benefit “people” like me.

Alerted to their intentions, I followed its implementation in subsequent years and watched as the increasing depletion of the disposable income of the majority of working Bajans, who earn less than $3,000/month, through indirect taxation, has reduced spending in the economy.

This has led to stagnation and further contraction in local business activity. UWI economist Dr Justin Robinson recently confirmed that the Barbados economy experienced little or no growth since 2000, following VAT’s introduction in 1997.

At the same time, the increased inequality has led to an uneven distribution of savings and asset purchases – especially real estate – which leaves many of us unable to own a home, far less a second property which can be rented out for additional income in senior years.

The reduced spending cut the revenue intake from indirect taxes, which together with cuts in income and corporation taxes have meant that the Government has not been able to finance expenditure without high levels of borrowing. To add insult to injury, we are continually accused of free-loading on “productive” people who earn high salaries, or run businesses, when we use public services. This is a myth, as I will show, since we ALL pay taxes. We pay far more than they think and they in fact pay less, as the tax is often passed on to us in the cost of the goods and services they provide.

VAT
We all pay VAT on most of what we buy, and all pay at the same rate. At 12.01 on January 1st, 1997, Barbados experienced an instantaneous inflation of 15 per cent as VAT was added to everything. Some import duties were reduced to compensate, but many were later raised again as Government looked for more revenue.

VAT was charged also on locally produced goods and on services, which had not previously been taxed, pushing up the cost and making them uncompetitive with imports, destroying many local industries which employed manual workers.

People pay VAT, businesses DO NOT. Businesses collect VAT from customers, deduct VAT paid on goods they purchased, for sale, or for use in their business, paying over the remainder to Government. So, if a business collects $5, 000 in VAT and paid out $1, 000 VAT on expenses, it pays the Barbados Revenue Authority $4, 000 and keeps the $1,000 to refund itself the VAT paid out.

Where you and I pay $117.50 in gas for our car, businesses apparently pay only $100 as they will get back $17.50 VAT of what we customers pay, which is NOT paid over to the Government. I say apparently because, as I will show, the businessman pays NOTHING for his gas, or for anything else. EVERYTHING comes out of the customer’s pocket.

We all pay 17.5 per cent on our expenses. Those who spend most of their salaries on monthly expenses actually pay a much greater proportion of their earnings in VAT than those who have money left over in savings at the end of the month on which no VAT is paid. In that sense, the poorer people pay more than those who have money left over to travel, buy a property, purchase shares, or other investments, which can increase their income.

Water tax
Water tax is a flat $45, or $46.50 per month for everyone. It is clear to see this is a larger percentage tax for someone making only $200 per week than for someone earning $6, 000 per month.

Land tax
Land tax is another simple one. Those who own their home pay land tax. Landlords DO NOT pay land tax, their tenants do. The rental will be set to cover expenses and provide a profit. Therefore, your tenant, as part of the rent, refunds you the land tax, which you pay over to the Treasury.

Customs duties and VAT on imports
Customs Duties and VAT on imports sold are initially deposited by the business with the Customs Department, but are then added to the direct cost of the items which WE pay. So ultimately, we each pay the customs duty and VAT on all imported goods, and the imported parts of locally manufactured items. The business, once it makes a profit, pays NO customs duty.

Duties and all other taxes on goods and services the business uses
Duties and all other taxes on goods and services the business uses, including land taxes, water tax, etc., will be included with other expenses such as salaries, transportation, telephone, electricity, etc., and costed into their mark-up which the customer pays. Thus, if the taxes form 10 per cent of total expenses plus profit of the business, then 10 cents of every dollar WE pay goes to the Government in taxes and this is in addition to the VAT and import duties on the items we buy.

So, in fact, the business does not pay $100 for gas for the vehicle, but recovers this $100, plus the $17.50 VAT from his customers along with all other taxes the business pays and the tax portion passed on to him for all goods and services the business purchases.

Corporation tax
Corporation tax is the ONLY tax a company pays. In Barbados, this is the ridiculously low 1, 2, 3.5, or 5.5 per cent of PROFITS. A company with sales of $235, 000, VAT of $35,000 and expenses, including taxes, of $150, 000, pays a maximum of $2, 750 in corporation tax, leaving profits for distribution at $47, 250. Even that $2, 750 has been provided by the customers as part of the profit margin portion of their mark-up on goods. They never even reduced their markups when corporation tax was reduced from 30 down to 5.5, or 1 per cent to account for the reduction.

National insurance

National Insurance is paid by working people at 11.1 per cent of gross wages up to $5, 120/month. Those earning over $5, 120 do not pay NIS on the excess. Employers pay 12.75 per cent on salaries and wages.

However, they are only paying over to the NIS money they have collected from their customers as part of the mark-up on their goods and services.
WE pay 11.1 per cent of what we earn to NIS. Then every time we shop, WE pay a part of the store owner’s employers’ NIS. WE workers actually pay the entire 23.85 per cent contributions to NIS.

The business, unless it is making a loss, does not pay into the NIS even the 25 per cent severance contribution which they get back when they pay us severance. They get refunded the 25 per cent by the Government of contributions actually paid by their customers.

Transfers from taxation to NIS
Unknown to most people, there are a lot of former taxes included in NIS contributions. Things like non-contributory pensions, repairs after a disaster of welfare recipients’ homes, the 2.5 per cent contribution to the Ministry of Health, and a few other items have been removed from the

Treasury, where they were paid out of taxes and put into the NIS and the TAX added into our NIS contributions.

NIS contributions are only charged on the first $5, 120 (was $4, 880) of salary, or $1, 182 of weekly wages. By including items formerly paid out of taxes in NIS, a greater proportion of the Government expense on these items is paid by the lower-paid workers. Whereas, if it were included in income tax expense, more would be covered by earnings over $5, 120, with a lower cost to those at the bottom.

The BLP’s shift to indirect taxation
The BLP’s shift to indirect taxation described by my father’s colleague in 1997, confirmed by IMF Consultant Dr. Kevin Greenidge at a BCCI luncheon in February 2020, saying they were “shifting from direct to indirect taxes more so,” has resulted in moving the burden of taxation more onto lower-paid workers.

When Government’s advisors, like Dr. Greenidge and the IMF, or Ryan Straughn suggest that services such as the Water Authority, the Transport Board, or Garbage Collection and other State-Owned Enterprises should not be subsidised by “taxpayers” money and the fees should cover the cost of the service, they are denying that the lady boarding the bus, paying for the water, calling the ambulance, attending polyclinics or the

Accident and Emergency, you and I, have paid for that bus, for the water pipes and equipment, the garbage trucks, the hospital equipment, etc., over and over with the taxes WE paid every time we opened our purse, or used our debit/credit card to pay for goods at the store, or paid the doctor, lawyer, accountant, or engineer whose taxes are included in their fees.

Instead, we are now expected to pay again for the Government services we already paid for, so the party can seemingly save enough to pay big salaries to party favourites for upwards of 25 ministries (many with two or three ministers), consultants, lots of overseas travel, putting on lots of shows, subsidising foreign hotels, or airlines with the cost of an entire tourism ministry, or more tax cuts for the rich. And we must NOT complain when the services we use are deficient because they are short changed on the excuse that their users are free-loaders.

We pay the taxes – once you filed an Income and Expense Account including taxes which show a profit, then your customers or clients paid your taxes, including the income, or corporation tax since it is part of the profit contributed to your business by customers, and we have the right to demand reliable services and to point out where OUR taxes are being misspent.

Ann Walcott is a commentator on social issues. This column was offered as a Letter to the Editor.