Finding a person who enjoys paying taxes is likely to be an impossibility. In fact, the idea of paying taxes has been a source of anger and frustration for generations.
Calvin Coolidge, the 30th president of the United States of America said: “Collecting more taxes than is absolutely necessary is legalised robbery.” On the other hand, the key figure in American Enlightenment Benjamin Franklin, reminded us: “In this world nothing can be said to be certain, except death and taxes”.
The imposition of taxes on Barbadians at a time when they are already under tremendous pressure from rising inflation has taken centre stage as Government begins the process of actioning a 2022 Budgetary proposal.
The Pandemic Contribution Levy or Pandemic Tax, as it has been labelled, has caused some concern even though it is not an across-the-board tax but one that targets select groups.
Barbados has had a history of using progressive taxes, where the impositions are based on the taxpayers’ ability to pay. Lower taxes, and in some cases no taxes are imposed on lower income earners, while the rate increases as persons climb up the income ladder.
Conversely, a regressive tax is characterised as one that is not relative to a person’s ability to pay that tax. The Value Added Tax, for example, has been universally critiqued as a regressive tax because the proportion of a person’s income expended on that tax actually falls as they progress up the income scale.
This context is useful as Barbadians who earn gross annual salaries $75 000 ($6, 250 monthly) or more, are expected to pay one per cent of their income to the Pandemic Levy for the next 18 months.
On the other hand, specific corporate entities, namely telecommunications companies, the commercial banking sector and deposit taking institutions with the exception of credit unions, those involved in the retail sale of petroleum products, as well as general and life insurance companies, who registered net profits above $5 million in 2020 and 2021, must pay the Pandemic Contribution Levy on those incomes at a rate of 15 per cent. This runs from July for the next 18 months.
Not surprisingly, the local private sector has been quite vocal in its opposition to the levy, describing it as unfair and retrograde because of its retroactive nature.
Anthony Ali, the head of Barbados’ last remaining regional conglomerate, Goddard Enterprises Limited, said during a Budget review session staged by the Barbados Chamber of Commerce & Industry, that most companies had “closed their books” on the 2020 and 2021 financial years. He, logically, questioned: “How are you going to go in and account for this? It’s a nightmare.”
Today, we learned that the International Monetary Fund (IMF) too has its doubts about the levy, despite how well intentioned Government’s plan was in conceptualizing the tax.
Former Minister in the Ministry of Economic Affairs, Marsha Caddle offered a defence of the levy during her contribution from the backbench in March, rejecting complaints from the business community that the tax was retroactive and an unprecedented move.
“It is a one-time levy that has to use some figure as a base, and that base figure has to be the earnings that were made because it is being levied on earnings that were made at a time in the past,” she contended.
“So, I don’t want us to confuse issues and refer to things as a retroactive tax when, in fact, it is a single one-time levy,” she countered.
The IMF’s lead economist for Barbados Bert van Selm does not agree. The pandemic tax has been described by our key financier over the past four years, as one that will be disruptive.
In its latest report, the IMF mission said: “In discussion with the staff, the private sector indicated that this retroactive application of income taxes could create significant uncertainty over companies’ income projections and business plans and be detrimental to investment plans”.
The middle-income group of tax payers will take comfort in the fact that this imposition on their gross salaries will be short-lived, as this set of income earners have long complained that they are the most heavily taxed, and remain the prime targets when administrations seek to raise additional revenue.