The Grenville Phillips Column – Paying the Piper
Tax on companies is called corporate tax. Tax on personal income is called income tax. In 2015, the Government received $210 Million from taxing companies and $452 Million from taxing individuals’ income. The Government also received other taxes from individuals. For example, much of the $811 M from VAT and $150 M from property taxes.
Companies normally receive significantly more revenues than what workers collectively earn. Therefore, why must workers carry more than twice the tax burden as companies? The answer lies in a ridiculous legally permitted loophole that all companies are instructed to exploit. The Government of Barbados has decided to tax companies on their profits.
A company sells products and the total amount earned is called revenue. However, the company had to pay for materials and labour to produce the products. The costs that a company spent to produce the products are called expenses. When expenses are deducted from revenue, the result is called profit.
Since the Government of Barbados taxes profit, the reasonable aim of company owners is to reduce the amount of profit in order to reduce the amount of taxes that must be paid. How can a company reduce profit and still grow the business by selling more products and making more revenue? Profit can be reduced by inflating expenses. How can expenses be inflated? There are diverse ways, including claiming any personal expenses that can reasonably be justified as company expenses, and claiming investments in new products.
There are many personal use items that can be justified as necessary for a company to develop and sell company products. Such items may include: cars, cell phones, clothes, lunches, dinners, gym memberships, home help (eg. maids), home maintenance (eg. gardeners, painters), caterers, donations, overseas travel, taxis, overseas hotel costs, tools, furniture, appliances and utility bills.
A company may invest in a new building and new equipment to increase the number of products that can be developed in the future. However, even though no products have been developed from this investment in the taxable year, the Government allows the company to include this spending in the company’s expenses for that year. This will significantly reduce the company’s profit, and therefore, the taxes to be paid.
If company expenses balance or exceed revenue, then companies with very high revenues can legally avoid paying taxes for decades. Since the Government needs revenues to fund social services such as education and health care, then instead of asking companies to share the tax burden, the Government instead increases the tax burden on individuals.
`Why is the Government so afraid to fairly tax companies? One likely reason is that companies have admitted to giving money to political parties’ election campaigns. Such contributors normally qualify as proverbial pipers. In the 2013 general election, the BLP candidates reported spending approximately $1.2M and the DLP candidates reported spending over $1M. The winning candidates spent an average of over $41,000, while the losing candidates spent an average of over $33,000. Is there a better and more equitable tax policy that is not influenced by the pipers?
Solutions Barbados published its fair tax policies over 2 years ago and they have undergone over 2 years of rigorous public scrutiny. It is proven that when taxes are low, simple to calculate, easy to pay, and easy to check for compliance, governments normally receive more revenues. Therefore, corporate tax rates will be reduced to 10%, and applied to revenues with no deductions.
In a Solutions Barbados administration, companies can avoid the wasteful costs and effort required to inflate their expenses to trick the current system, and they will finally be allowed to equitably share the national tax burden. It will also allow personal income tax rates to be reduced to 10% with no deductions, and VAT and the NSRL to be abolished.
Since Solutions Barbados is not funded by any of those entities who fund the BLP’s and the DLP’s political campaigns, we have no such pipers, and can do what they simply can never do. This includes implementing policies that can allow Barbadians to finally prosper, rather than simply appearing to.