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WILD COOT: Strange use of taxation

HARRY RUSSELL, [email protected]

WILD COOT: Strange use of taxation

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THE IDEA of using taxation as a means of dampening the use of foreign exchange will fall more heavily on the poor and worsen their standard of living. The Central Bank seems ill-advised to compare that situation with the apparent success of the eight per cent pay cut of civil servants in the 1991 debacle brought about by the injudicious handling of the economy.

Yes, if you increase taxation, the people have less money to spend; the merchants import less and in principle more foreign exchange is preserved. But there are a lot more consequences.

Also, this is no guarantee that the impact on the foreign exchange will be reduced. This does not consider the confidence factor and the decline that could be caused by illegal activities. Confidence plays a most important part in the conservation of foreign exchange. One only has to ask the Jamaicans.

We should be guided by the experiences of Jamaica. The more taxation and legislation introduced, the worse the foreign exchange situation. The wealthier persons will find means to escape the efforts of the Central Bank and when not able to do so the higher tax will be paid albeit as a slight inconvenience.

No, we should take a closer look at the earners of foreign exchange. It does not take a rocket scientist to determine how much foreign exchange a hotel has earned if you calculate the average occupancy time, the average price of a room and compare the results with the amount of foreign exchange declared. Given the maintenance cost and other obvious obligations the resulting foreign exchange brought to Barbados should make sense.

Increasing taxation on the community does not affect companies exempt from taxation. Therefore the argument of the Central Bank makes little sense since a tax policy scheduled to affect reduced use of foreign exchange by the imposition of taxes would not apply to an entity that does not pay taxes.

The Central Bank is way out of line with this argument as it must be aware of those who are tax exempt.

One bank has stated that in six months it has made$146 million (40 per cent increase) as compared with last year. This is due to “lower funding cost and higher non interest income”. Non-interest income comes from the various charges that have recently been tacked on to customers’ statements.

If this is the experience of one bank, then the others are not far behind. Maybe the Central Bank is looking in the wrong place for savings in foreign exchange as profit in all banks here means export of foreign exchange. In one case the foreign exchange is not coming in; in the other case it is going out. Taxation is a cop-out.

There is a need for a revamp of the whole system. There is need for the Minister of Tourism to rethink the giveaway tax responsibilities that mainly all-inclusive hotels have been enjoying. Why should this be perpetuated on the suffering of the least able who themselves have been subjected to a halt in wages increases and been bamboozled by the Central Bank’s interest policy and support for more taxation.

But there will come a time when the bucket will no longer able to go to the well. We see daily the increasing number of cars and other vehicles parked off the road with ‘for sale’ signs. This should tell the Central Bank that its policies are not working. This should also advise the sellers of vehicles that their businesses are at risk even if super generous terms are offered on the purchase of a vehicle from them as compared with through the commercial banks.

Look at it this way. A seller of vehicles incurs costs in bringing the vehicle to Barbados, incurs costs in keeping the vehicle in stock and advertisements etc. The money that a bank lends for the purchase of a vehicle only cost at the most one per cent in interest. Apples and oranges!

It does not seem logical that the more we are taxed, the more indebted the country is. Something is wrong with the heads at the top. The apparent silence of Barbadians in the wake of deteriorating conditions (more and more holes to plug) may mean that people are each looking for their own solution. That usually leads to anarchy, as things do not eventuate for the common good.

Taxation to counteract a draw on foreign exchange does not seem to be working. No matter how many visitors come to the island, if the cost of coming here is not remitted here or if the profit for bringing them here does not mesh with our taxation, “cat gnam yuh suppa”.

•Harry Russell is a banker. email: [email protected]

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