The Minister of Finance delivered the Financial Statement And Budgetary Proposals last week. He reached directly into the pockets of personal taxpayers to extract additional taxes – not for income year 2016, but right away for income year 2015.
From a personal financial perspective, this Budget is a very negative development, particularly to the sizeable middle class which is already reeling under the current economic pressures. Many of these increased tax rates will apply during this year and for those in the $70 000 to $100 000 annual gross income bracket, it will amount to another monthly bill ranging from $200 to $400 per month or more.
People who may have set their long-term financial plans based on the expectation of mortgage interest, home repairs and home insurance being tax deductible amounts, even if limited, will likely be the most disadvantaged. Right from 2015, these expenditures will no longer be deductible for tax purposes at all.
It is not pellucid, yet most commentators have drawn the conclusion that it will no longer be possible to save using registered savings plans or voluntary pension contributions towards one’s retirement free of taxes. To lose this benefit seems contrary, though, as it is in Government’s interest to help more citizens to be self-supporting during retirement.
When Government has to meet the needs of elderly people during the latter years of their life, it becomes a burden on all other taxpayers. Greater clarification is needed on this measure.
Income tax rates reduced
The overall personal income tax rates have been reduced from 17.5 to 16 per cent within the first band and from 35 to 33.5 per cent on the remainder of income in excess of that band.
However, with significantly reduced deductible expenses, this will work out to be a slightly smaller percentage rate of tax on a significantly larger taxable income base for most of the middle class. The result will be more taxes payable compared to the previous tax regime.
The deduction of medical expenses for people over 40, which was only just introduced by Government a year ago, has also now been eliminated by this Budget. In addition, the value added tax zero-rated basket of goods has been reduced by the elimination of certain food described as “luxury” items. There is also a proposed tax on a range of sweetened beverages.
The Minister of Finance has resurrected the proposal of a tax on the use of mobile phones. Although this tax will be applied to the service providers, there is no doubt that this will be fully passed on to consumers in some way.
Next, landowners can expect an increase in taxes for residential properties which are valued at over $150 000. Even with the repeal of the Municipal Solid Waste Tax, the new regime of land tax will end up extracting more from landowners.
Ostensibly, part of the aim of the Budget is to simplify tax administration; ultimately, the Budget virtually eliminates likely tax refunds for the entire middle class for income year 2015.
Not only should this category of taxpayer plan on a significant call on their monthly cash for additional taxes going forward, but these taxpayers need to consider the six months of the year that have already passed. An additional tax charge rather than a refund is highly likely on filing tax returns for income year 2015.
Louise Fairsave is a personal financial management adviser, providing practical advice on money and estate matters. Her advice is general in nature; readers should seek advice about their specific circumstances.
This column is sponsored by the Barbados Workers’ Union Co-op Credit Union Ltd.