Let’s turn Mitt Romney’s famous 2012 remark on its head and ask: “If people were corporations too, how much tax would they pay?” The answer is almost nothing.
Why, what is the difference and why does it matter?
Companies pay tax only on profits, whilst people pay tax on income.
Most people don’t understand the fundamental difference between the way personal versus business earnings are assessed in taxation and how current taxation policy is biased against ordinary working people because of the changes which have taken place since the 1992 International Monetary Fund (IMF) Budget to advantage corporations, businesses and the higher income earners, shifting the majority of the tax burden downwards onto the backs of wage earners.
In his book Eyewitness To Order And Disorder, Harold Hoyte writes of former Prime Minister Sandiford who on October 31, 1992, revealed the long-awaited details of his Letter Of Intent to the IMF: “Over the next two years, Government plans to undertake a tax reform programme aimed at broadening the tax base, removing disincentives to exports and simplifying the tax system.”
This “broadening of the tax base” and “simplifying the tax system” are euphemisms for increasing taxation on working people by means of indirect taxation on goods and services (duties, National Social Responsibility Levy – NSRL, other sales taxes and VAT).
Also, reducing or removing allowances for personal tax, reducing the number of tax brackets and different rates (in this case to two only) so that individuals in the lower brackets paid more, whilst those previously in higher brackets had their taxes lowered.
This process has continued progressively through three administrations – Sandiford’s, Arthur’s and Stuart’s – and I believe is one of the reasons the Barbados economy has stagnated, as the majority of people simply have little or no money to spend after covering the basic essentials.
Personal income tax is assessed on the whole of the individual’s pay cheque, or pension, less only those “allowances” granted by the whims of the Government of the day, which change with each Budget as the minister determines how much money he will need to run the country and where he will source those funds.
Recent budgets have reduced those allowances to a bare minimum. A “personal allowance” of $25 000, or a little over $2 000/month, and “child allowance” of $1 000 ($83.33/month – which idiot thinks you can raise a child on $83.33 a month?). In 1993 this was restricted to a maximum of two children. For the majority of working people – middle, lower-middle and lower income – there are no other “allowances”.
Thus, for working people tax is deducted at 16 per cent on the first $35 000 after deducting these allowances and at 33.5 per cent for any earnings after that.
And income tax is only the start. The first $25 000 is not really tax-free as NIS (which is another tax imposed by Government – the Americans call it “payroll tax”) is deducted at 10.1 per cent on up to $4 650/month, or $55 800/year.
NIS actually increases our tax rates to 10.1 per cent on the first $26 000 (assuming one child), 26.1 per cent on the next $29 800, reducing to 16 per cent from $29 800 to $61 000, and 33.5 per cent above that.
NIS contributions were deducted before calculating income assessable to taxation; but in 1992 this was changed, so that both NIS and income tax are charged on the portion between $26 000 and $55 800; that is, between $2 167 and $4 650/month, or $500 and $1 073/week – the salary range of most ordinary Barbadians.
At the same time in 1992, ordinary share dividends paid by corporations out of profits subject to taxation, were deemed non-taxable on the basis – if you can believe the double think here – that charging tax on profits and on dividends paid out of those profits amounted to double taxation.
But charging National Insurance tax, as well as income tax on the same income, so that you actually pay tax on the NIS contribution which you never receive, as well as charging income tax on the benefits and pension paid out of those contributions, is not double taxation.
Corporation tax is assessed only on profits. That is, on income less all expenses that relate to the business of earning that income. It is the only tax companies pay. Companies do not pay VAT, NRSL or any of the other duties. These are all recovered from the customers as part of their cost of goods sold or their expenses, which are all deducted before tax is assessed.
Companies collect VAT on behalf of the Government. They do not pay VAT. VAT on purchases is deducted from VAT on sales (which has been paid by the customer) and only the difference is paid over to the Barbados Revenue Authority.
Once a company makes a profit, it is clear that all costs, including all taxes and levies, have been recovered from customers, or there could be no profit left over. If they make a loss, which might include an element of taxation in the excess expenses, that loss will be deducted from future profits before charging tax, so the taxation will be recovered from future income and there will be no double taxation of any kind as there is with individuals who pay double, triple . . . taxation on top of taxation, which leaves them with only a fraction of their earnings to support themselves and their families.
If Barbados is to progress further in its development, there must be a rebalancing of the tax burden to ensure the working population retains a reasonable proportion of its income, and the costs of running the country are shared more fairly by those who can most afford to pay.
I wish to stimulate a conversation about tax policy, which will lead to new, innovative thinking, creating a more equitable tax system, which benefits the country and its people as a whole and not just a limited segment of the population.
– ANN WALCOTT