As Government concludes the first week of debate on the 2021-2022 Estimates of Revenue and Expenditure in the House of Assembly, the matter of an efficient tax collection system ought to be addressed.
The gaping $782 million budget deficit that confronts the Mia Mottley administration in this financial year, is the proverbial elephant in the room that cannot be ignored. The options available to the authorities for managing this monster are limited and fraught with challenges.
Frankly, there are often two main ways to reduce a budget deficit. Either increase the options through which income can be generated or be prepared to cut spending.
Unfortunately, many households have been rocked by pervasive job losses over the last 12 months, mostly triggered by a collapse of the global travel and tourism business, as a result of COVID-19.
The situation has forced many families to manage their needs on razor thin incomes along with some support from the state, in some instances. To supplement their financial situation, some Barbadians have resorted to basic income earning activities such as selling home-made bread, establishing home-delivery services, and even catching and selling centipedes for research purposes.
At the national level, however, we wished the solutions were so simple to craft and implement. The debilitating COVID-19 pandemic has deepened our economic troubles, leaving policy makers with a situation they most hate – instability.
Designing economic responses in a highly unstable and tumultuous environment, is among the worst nightmares for technocrats.
Government has been left with very little wiggle room. The administration has no choice but to kickstart capital works projects in an effort to inject some life into our battered economy.
Such a move would not only serve as a job creation exercise but also an economic stimulus.
Tax increases, we know from experience, can be tricky undertakings. Even more so when a general election is not that far off and preserving one’s political power is paramount.
In addition, economic activity in Barbados has slowed tremendously with businesses forced to close due to state-imposed lockdowns, and public health interruptions as a result of COVID-19 infections. With corporate tax rates reduced to 5.5 per cent, there is little chance of extracting more from domestic companies.
The administration has predicted a $400 million reduction in tax revenue this financial year. But the Government knows it will face an uphill task trying to bridge that $400 million gap by imposing higher taxes on a largely financially strained population.
In normal times, the expected response to reduction in revenue, would be to cut Government expenditure. But these are not normal times. COVID-19 pandemic-induced expenditure has been immense and will likely continue to be.
Government has spent and continues to spend large sums on COVID-19 related projects. For instance, the construction and the upkeep of the Harrison Point, St Lucy facility.
Then there are the promised payments to businesses and individuals affected by the lockdowns. The continued payment of salaries and other expenses to those hired for COVID-19 related matters. Payments for the resources needed in the COVID-19 fight, including vaccines.
The need for a comprehensive reform of the tax system, has been advocated for quite a while. The present system of tax collection is inefficient in many ways. The need for effective tax collection will be crucial in the face of this massive drop in tax revenue.
Recently, there has been an increased impetus towards entrepreneurship and self-employment. This is welcome because opportunities for employment at this time in the public and private sectors are very limited.
However, the present system as practiced, presents difficulties for tax collection and enforcement. The Barbados Revenue Authority (BRA) will need to effectively employ the resources at its disposal, to ensure that these entities and individuals, pay their share of taxes.
It has been suggested that the informal economy of small shops, cottage industries, agricultural endeavours, personal care services like hairdressers, nail technicians and more, are not contributing to the Pay As You Earn (PAYE) system.
Even more, as the COVID-19 pandemic revealed, many small and micro entrepreneurs are also not contributing to the National Insurance Scheme (NIS), and thus have no safety net in times of disaster.
Addressing the issue of making tax institutions resilient, even in these times, a recent Inter-American Development Bank (IDB) publication titled Economic Institutions For A Resilient Caribbean, reminded us of the importance of an efficient tax collection system.
After all the tax relief, extensive social programmes, expenditure of health and infrastructure and mitigation efforts during this COVID-19 response period, there will come a time soon when it all has to be reconciled and taxpayers will have to foot the bill.
This burden cannot continue to be on the backs of some persons, while a significant amount of others, escape contributing their fair share to the Treasury.
Importantly, the Barbados Government needs to be more efficient in tax administration and speed up tax reform to better prepare for a post-COVID-19 economy.