Submitted by Tony ‘Kite’ Gibbs
The recent proposals by the President of the Barbados Chamber of Commerce (BCCI) to recover road taxes through fuel tariffs at the pump may seem administratively elegant at first glance, but to the non-economist like myself, is riddled with shortcomings, economic and otherwise, which do not appear self-evident to many in the Barbados Economic Society.
Road taxes are fixed charges levied by the government on vehicles for the right to use the roads in this country. Collecting road taxes at the pump through volumetric rates will always result in revenue adequacy problems. There will be over-collection of taxes when the economy is good or when oil prices are low and under-collection when economic circumstances force motorists to drive less. Road taxes collected in this manner will eventually be biased towards over-collection since there can be no conceivable way for Government to true-up and reconcile collected taxes on a month-to-month basis, in a revenue neutral manner, similar to what occurs with BL&P and the fuel clause adjustments.
For efficiency purposes, regulated prices such as fuel prices should reflect marginal costs. The common view is that consumer welfare is maximized as long as the value placed on a good is at least equal to the additional resources that must be committed to produce that good. When fuel prices are further burdened by duties and now road taxes they serve to distort prices in a manner that raises problems for allocative efficiency and create unintended outcomes. To avoid paying higher taxes, some motorist may look for substitutes such as electric vehicles, LPG conversions or may even turn to smaller fuel efficient means of transport. Diesel may also be a consideration because of its fuel efficiency. These actions not only distort the market but may result in less tax revenues and a greater tax burden on those motorists who are unwilling or unable to make the switch.
By far the biggest concern one sees with this proposal is the equitable distribution of this tax burden. The BCCI President is reported to be of the view that this tax will be ‘more equitable’ relative to road usage. Meaning that the more miles you travel each day, the greater the tax burden should be. She is also of the view that non-commercial road users should bear a smaller burden than commercial road users. The Barbados Economic Society seems to have found favour with most if not all of these ideas calling them ‘novel’.
Notions of equity are always very tricky issues since they are generally influenced depending on where you sit. The most common understanding of tax equity is that equally situated citizens should bear the same tax burden. Also, there is a notion of equity that suggests that those who make more should pay more. Now my question to the BCCI President is how equitable is it for a St Lucy resident to pay higher road taxes simply because he/she has to travel in traffic to Bridgetown to work each day while a person who lives and works closer to town pays less? What about taxi drivers, mini bus operators, freighters, fishermen etc who make a living from transportation? Will they not suffer a significant increase in their operating costs and be forced where possible to pass it on to customers? The issue of commercial users paying more is really a non-issue. They already do that, so that will not change. What will change is how much more they have to pay for the same level of road usage.
Finally, we come to ease-of-administration, whereby government is now asked to delegate to others the collection of taxes. The feeling here is that it has worked well for VAT so why not try it for road taxes. Well, to that suggestion I say` good luck! And to kill two birds with one stone, why not make gas stations check for insurance as well. The simple truth is this seemingly benign, elegant and novel form of tax collection is really a Trojan horse cloaked in the gown of administrative efficiency. Yes, productivity maybe low in the Pine and other Government offices, but is that reason to further swell our unemployment numbers?
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