H. R Sawyer, former President of The Grand Bahama Chamber of Commerce gives his views on the Advantages and Disadvantages of the FTAA for the Bahamas. (Below is his full text)
TAXMERIGHT by: H. Rudy Sawyer
"There will be no taxation without representation" was an effective rallying cry used to fuel a revolution against England in the United States in the late 1700's. Today it should be revolted against if it is used by anyone to justify the reason for taxation.
Taxes are used to raise revenue for governments -they are the domain of governments. Taxation is the main means for governments to raise the revenue required to pay for the running of a country -it can be said, forfeit is the price we pay for civilisation". The main source of taxes for any nation, I contend, should come from the major sources of the economy of that country -from whatever generates the most money in that country consistently, its major resources. If oil, minerals, valuable metals and stones are the rich resources extracted and exploited from countries, then those should be the main taxable source for the relevant countries, a la, Saudi Arabia, Venezuela, Trinidad & Tobago, Jamaica, South Africa etc.
There are many forms of taxing, the main two used by countries as their main sources of revenue generation are taxes on the income of its working population; and taxes on the consumption by people in its country. Other taxes are corporate, business license, gaming, export, inheritance, death, property, departure, stamp duty, road user, etc. The two. (2) General genres for tax methods are direct and indirect taxation. Most taxes are direct because they are charged directly to the beneficiaries or purchasers of products; whereas indirect taxes are prepaid and recovered from the beneficiaries when they purchase goods.
No tax system is totally right or totally wrong, (most of us may think that no tax system is right). In fact, a tax system that may be better for one nation may not be suited for another at all, there is no one-size-fits-all with taxation. It is the same with most systems (things) both in nature and man-designed. Henry Ford was revolutionary when he mass-produced cars, everyone coming out the same. It was not too long before the competition caused change and difference became the standard. 'The Anatomy of a Car' stated, "Benz also provided an early warning of the dangers to come for all companies which pin too much faith in a single idea and fail to move with the times. It was a fate which nearly befell both Ford and Volkswagen amongst others." Beware of sameness, life's spice comes from its various forms.
Generally, large population based nations that can sustain themselves from their own production are better suited to tax their working population's income. Whereas, small population states that must depend on others for most of the products they need are usually better suited for taxing the consumption in that country as their main source of government revenue.
With large population states economies-of-scale play the major factor in the application of income tax, whereby a slight (or low percentage) increase in the tax on the individual could result in significant aggregate revenue generated for the state. Contrastingly, in the case of small population states with an income tax system, any significant revenue increase desired by the government would mean a correspondingly high levy on the individual income of its population. This can have the effect of the government significantly reducing the discretionary income of most of its residents, leading to a high dependency on the government. This becomes even more pronounced when it is realized that most states do not levy only one form of tax on its people, in fact, it is not unusual for small countries to tax not only income, but, also, customs duties, stamp duties, v.a.t., property, health, and business. With all these, blame could be put on these governments for taxing their people into poverty. I have heard of countries that have average income tax rates from 20% to 40%, as well as customs duties averaging from 10% to 30%.
The Bahamas, which is a small population nation of just over 300,000 people of which about 153,000 of them are employed, and where about 80% of its usable goods are imported, has an indirect taxation system of customs duty. This is the 'rightist' tax system for The Bahamas. With tourism as its major industry, this unique export that requires the importation of people with foreign currency to pay for the Bahamian tourist product, causes a population increase of over ten times its local population each year. These over three million people are a lucrative source for government revenue. And, it is not unfair taxation since money is required by government to maintain infrastructure and other conveniences for their comfort, as well as to preserve, protect and maintain those tourist resources that will erode and be destroyed from the success of tourism.
Since most goods for locals and tourists must be imported it is certainly easier, more convenient, and less costly for government to apply and collect import duties at the point of importation. The merchants who pay up front are then responsible for recovering this cost through sale, without having to concern themselves with government again until the next import. It is argued by some that this system causes goods to be more expensive in The Bahamas. This may be so in a general way. Certainly goods are expected to be more expensive than those from the country imported from, but when compared with other competing countries farther away, they also are importing goods to service their tourist and local markets. With customs duty government uses its weighted discretion to determine what items are to be free from customs duty, which will attract a small duty, and which will be levied a high rate depending mostly on use and need.
Any country such as The Bahamas, which NEEDS imports to service its major industry and for the survival of its people cannot wisely use customs duty to restrict trade. Customs duty under these circumstances does not stymie free trade since the rates are the same for the goods irrespective of where they originated. People in the country pay the same rate wherever they import the goods in the country.
Most of the goods imported to The Bahamas come from the United States and most of the tourists servicing our tourism industry also come from the United States. I contend that there is an obvious imbalance in our balance of trade with the United States of America strongly in their favour -we spend more with them than they with us.
Alternatively
With the coming into force of F.T.A.A. in 2005 it is said that we will have to change our tax system. I ask why? If some other system would not be right for us why must we deliberately jeopardise our well being because someone else wants us to do things because they do it, and they say do it? F. T. A.A. is a negotiated agreement to which parties to the agreement make their inputs, and most such agreements do have degrees of flexibility, which allow participation without 100% compliance. We must weigh out what system of taxation is best for us and bring this with its justification to the table of the world. I certainly believe that with the proper analysis our current system will be justified. This will not only help us, but, we may be able to convince other small states to change their system to something close to what we now have. Allowing their population more freedom to make their own choices on what they spend their hard earned money for, and positively impact their economies. Some do support the change of our main tax source from custom duties to a form of sales tax, effectively moving the taxing mechanism from the front of the product to the back. Instead of the merchant pre-paying the duty then recovering it at sale, having the merchant import the goods without paying duty and having the consumer pay the tax on the product directly when they purchase it. Under this system the merchant is then responsible to hold the government revenue until they decide to pay it, or government goes to collect it. Besides the obvious requirement of government to establish another agency for the collection of this tax, customs will still be required for import inspection and collection of reduced duties. Would goods be any cheaper? Maybe slightly, but I don't think substantially. Government still will need to get at least the same amount of revenue it currently raises; therefore, the consumer will still be paying what they are currently paying for the goods. Remember that the tax has only moved from the dock to the counter where the consumer still pays for the cost of the goods plus the tax as he did before. The merchant will no doubt be at the great advantage under the system of a sales tax, not having to dole out any money from his source to pay government taxes.
If the system changes to a value-added-tax, it will be a sales tax system applied to not only goods, but also services. Bahamians will then find themselves paying extra for going to the doctor, buying insurance, and paying to get their hair done and cut, landscaping, as well as on everything we buy. Through this system government may end up increasing its revenue, but also its bureaucracy with consumers paying for it.
Any form of sales tax, on goods only, or a value-added on goods and services, will still preserve the means of continuing to raise tax revenue from the country's tourists. A saving grace, but is the added costs associated with changing worth what will be gained? I think not.
There is a strange inherent sense of grateful satisfaction with Bahamians from having to pay just one price for goods, as opposed to the ‘price’, plus another cost, the tax on the goods. I have seen tourists, not use to this, who also were overcome with this same sense of grateful satisfaction when they realized that they did not have to pay additional for their goods.
There is no equity in taxation! In accounting, on a Balance Sheet there are total assets and total liabilities, then the difference required to make them equal is in the equity section. Equity is the difference between the pluses and the minuses. Using the same method it would be unfair to assess only the collection side of a tax system and determine from this that because the poor pays more of their income proportionately than the rich, that such a system is inequitable. One must also examine the expenditure/distribution of those collected taxes to see which group receives the greater benefit before equitableness can be determined. When one does this with our tax system it would be clearly shown that proportionately more is spent to the benefit of the poor by government than is spent on behalf of the rich. I contend that with taxes the most important element is how government spends the tax money collected, even more so than how much and from what sector the taxes are raised. Under The Bahamas' tax system of import tariffs the government ensures that items (particularly breadbasket items) that are basic requirement for the survival of the poor are free of duty, and by the same token those items that are luxuries and affordable by the rich are imposed high custom duties. Even though the rich may pay a lower percentage of their income in taxes than the poor that lower percent from a much higher income usually is higher in absolute dollar amounts than the higher percentage from lower income. And, real dollar amounts are what governments work on.
Of the total expenditure of $961,848,000.00 by The Bahamas government in the year 2000/01, the following categories expended (B$'OOO):
$202,234 -Education. Almost 100% of the students who benefit from free education are not the rich. This alone could represent a saving of at least $1,200.00 per year per child to the low-income people.
$153,922 -Health. Most expenditure in this category benefits the low- income earners and the poor.
$67,441 -Social & Community Services. Mostly on the low-income earners and the poor.
$3,669 -Housing.
The rest is spent on the public debt, general public services, security, capital expenditure, and economic services for the benefit for all taxpayers.
Is F.T.A.A. ready for us? We certainly have been a free trade country longer than most, it has been the reason for our success in modern times. Calvin Kemp quoted a definition for "FREE TRADE" thus, 'free trade refers to the conduct of commerce between countries, uninhibited or unaided by government regulations such as tariffs, quotas and subsidies’. Customs duties in The Bahamas do not hinder, nor do they aid commerce between this country and any other in the world.
