A radical review of our tax system

By Untaught Economist

The Prime Minister has announced more changes to the tax structure in an attempt to overcome the severe financial situation that the country is faced with due to heavy borrowings. 

The proposals appear to follow traditional patterns that would be acceptable under ordinary circumstances. We are however in an extraordinary situation where not only revenues fall far short of requirements but the economy is also far below the degree of dynamism required at this time. 

The current situation demands out of the box thinking and quick changes to galvanise the economy and to generate the necessary revenue for the Government.  

We need to re-invent 1977. 

The country as a whole has to be galvanised to much higher level of economic activity such that there would be an intensified work ethic, greater production and increased exports. 

It is necessary for us to recognise the following: 

• By and large, the majority of our citizens are very content with their living standards and do not strive to increase their incomes. 
• The growth of an industrious person is inhibited by lack of opportunity, archaic rules, bureaucracy and taxation. 
• There is extensive tax evasion and avoidance. Only the employed and a few others pay income tax.  
• The rich do not contribute a fair share to Government revenue. 
• Revenue is collected mostly from inefficient indirect taxation. 
• Corruption is extensive at all levels. 
• A large proportion of our population are impoverished and cannot be further burdened. 

It is also necessary to recognise the following: 

• Incomes can only be spent or invested.  
• Taxes on income is dysfunctional to economic activity. 
• Incomes if spent, is good for the economy because money circulation will generate more activity and economic development.
• If invested wisely, then again the economy will benefit.
• If the money is invested in a bank, then it would enable the bank to utilise this money for further economic development. Money in banks should not be taxed. 
• Transmission of funds and also assets would result in movement towards more productive hands. Debit tax, Capital Gains Tax, Stamp Duty on land transfer are all dysfunctional for greater economic activity.
• Cheaper goods will result in greater economic activity and exports. 

I would propose the following: 

• Abolish all forms of taxation including Income tax, Corporate tax, VAT, NBT, ESC, Customs Duty, Stamp Duty, etc. 
• Introduce a Revenue tax to be collected through Government and Semi Government authorities as described below. 
• Government revenue be generated in the following manner: 
• All local authorities be required to add a revenue tax of minimum 100% of the rates and taxes on all land and buildings and remit to the Government. The percentage to be worked out according to the amount of the current rates. Exemption to be granted to the poor holding land/building below a specified size. 
• All vehicle registration will include a tax of 100% or more depending on the engine capacity instead of Customs Duty and other charges. 
• Annual vehicle license fee will include a tax of say 100% or more depending on the engine capacity. 
• All purchase of foreign exchange will include a tax of say 100%. 
• Instead of Excise duty, a further percentage of tax be added at the time of Foreign Exchange purchase on Excisable items 
• Petrol 92 and normal diesel will be taxed at 50% and Super Petrol and diesel at 100%. 
• Consumption of Electricity and Water over a certain limit will attract a tax of 100%. 
• All tax holidays be withdrawn 
• Exporters and other FE earners will receive an additional 5% (say) on their foreign exchange earnings to compensate additional costs incurred due to the above taxes. 

The objective of the scheme is 

• Make a huge reduction of unproductive costs. Prices will tumble and both productive organisations and the average citizen will benefit. Since no tax returns are required, reduction of costs of accounting etc. will benefit small businesses.
• Revenue collecting Government organisations will get down-sized over a period of time and Government expenditure will reduce. 
• To remove all discrimination in tax collection with no room for corruption, tax evasion or avoidance.  
• This will ensure that taxes will be directed more towards the wealthy. 
• No tax returns and the attendant issues are all avoided. 
• Collection is through established economic institutions such as the Banks, Petroleum Corporation, Electricity Board, Water Board, Local Authorities etc.
• nIndividuals and Private Institutions can fully engage in economic activity without revenue collectors breathing down their necks. 
• Tax collection will be guaranteed as the bill collection systems of all these institutions have efficient systems. 

Conclusion 

These are some general thoughts put together to generate discussion and to encourage Government Policy towards a system that would encourage greater economic activity and also enable the Government to collect the required revenue. The proposals including the tax percentages indicated above are not sacrosanct. These are mentioned in order to describe the system. The final rates and areas for revenue collection have to be determined by the Government using statistics available to them. 

So long as the objective of non-discriminatory tax collection which will target all people liable for tax leaving out the poor, is achieved, then the project can be considered successful.