Delaying The Inevitable
Bahamian government isn't likely to change the present tax regime voluntarily, even though it is regressive, easily undermined through corruption and favours the rich.
A little over two months ago a meeting was held to discuss the North American Free Trade Agreement and the Caribbean Single Market Economy within the context of globalisation and its possible impact on the Bahamas. The meeting, which was not well attended, featured several government experts who presented the up and downsides of these agreements; and shared some suggestions as to how the Bahamas might prepare itself to participate in these movements.
One of the points raised on Free Trade Agreement of the Americas was the necessity to remove trade barriers, one of which was customs duty, which is the primary source of revenue for our government. Because the red tape associated with the collection of customs duties affects the speed of foreign tradesmen doing business in the Bahamas, it was generally felt that this barrier would have to be removed. Further it greatly contributes to the high cost of living, which affects the ability of consumers to access many goods and services.
Unfortunately, it was felt, the Bahamas government isn't likely to change the present tax regime voluntarily, because it has afforded an easy way to obtain government revenue. Though regressive and easily undermined through corrupt and fraudulent practices, and though it disfavours the majority of the lower end salary earner, government would prefer to maintain the status quo, which favours the large bureaucratic public service and the rich who control the economy.
How much longer can we hold onto this form of taxation, so that we could market the Bahamas as a tax haven without income tax? How much longer will we persist in this half-truth, since one is really paying income tax, but indirectly? It doesn't matter how much we couch it, we pay taxes from our income every time we make a purchase, pay our water and light bill and other government hidden tax charges above and beyond the cost of government service; which ordinarily should not yield profits.
At that forum held at Loyola Hall on Gladstone Road, it was stated that our system of indirect taxation was put into place so that those who controlled the economy and government could keep the amount of their income hidden from the unsuspecting masses. They were too ignorant to participate in an income tax system anyway, which seems to be the perception of both the political and economic directorate of today. Despite the fact that more of the once large ignorant masses are now very much travelled, knowledgeable and capable of understanding income tax systems, we continue to hold onto a system that continues to under-capitalize government business.
As a result the country is badly curtailed in its efforts to deliver the level of service needed to stimulate growth. Oftentimes it discourages the ingenuity and entrepreneurship which are needed to stimulate growth, according to Bahamas Freedom Alliance leader, Mr. Halson Moultrie.
Instead it cultivates a mindset to pursue government jobs, and in turn government tries to become entrepreneurial with little success, in order to justify the large burdensome public service.
Why does government shrink from the notion of introducing direct income tax, which seems to be a much more equitable system than that which we now use? Does the reluctance have anything to do with the fact that the controllers of the political and economic systems might have to pay their true fair share to the maintenance of the state?
Let's look a little closer at the present indirect system of taxation. Let's say that there are 100,000 automobiles on New Providence that average ten gallons of gas usage per week. That would translate to about $11.00 tax a week to government or $572.00 a year. For the annual average salary of $13,000 per year, that amount translates to more than 4% tax.
Let's say that such a family spends $100.00 a week for groceries. Of that amount, probably some $10.00 or 10% goes to government in taxes. Over a year that translates to $520.00 or more than 4% tax from $13,000.00.
Let's say that $10.00 a week go to government for National Insurance (tax), that translates to $520.00 or more than 4% from that annual salary of $13,000.00. So far, such a wage earner has paid more than 13% of his salary to taxes. He is yet to pay rental fees for electricity and telephone, he is yet to pay to have his car licensed or for his driver's license, or his real property tax, and other taxes on household equipment entertainment, clothing etc.
Since some of these taxes remain constant whether one earns $13,000.00 a year or $200,000.00 a year, it would seem that the lower the wage earner the larger the percentage of his income he pays in taxes. It also stands to follow that his chances to move up the economic ladder is more difficult. His chances are much greater to remain locked into the hopelessness of poverty. Is there any wonder we hear government complaining about leakages in the system? Is there any wonder only 50-60% of workers pay their national insurance "contribution"? People are looking for some sort of tax relief and they get it by hook or crook.
Judging from the government's recent budget, it would appear that the present system of taxation has reached a level of diminishing returns, and yet we remain deep in dept, which more than likely will continue to grow because of an overly large public service, Bahamasair, Broadcasting Corporation and other government-run entities; yet we keep digging to get out of the hole.
Successive governments have refused to bite the bullet to pursue a policy of income tax, for fear of losing power. This position simply delays the inevitable; and the longer we delay the more chaotic and painful the results when we finally have to do it. So far only the Minister of State for Finance, the non-politician and technocrat, has demonstrated the courage and honesty to come clean to the Bahamian people. He might just be surprised at the number of people who support his position. Government should be open to his wisdom. After all that's why they hired him.
Viewpoints, The Bahama Journal