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A Call for Tax Reform
by
Apostle Cedric Moss

As a follow up to my commentary last week and feedback and questions received, today I share some thoughts on our nation’s need for tax reform.


A Communist?
One reader, who actually agreed with my comments, thought rich folks might call me a communist. While this is certainly a possibility, I’m sure that such a label will not come from those persons who read and understood my comments about customs duties versus a flat tax on income and realized gains. However, for the sake of clarity, I categorically state that I am not a communist. History has shown communism to be a bankrupt economic and political system and a failure on virtually all fronts, the main one of which is the economic front. I agree with history.

Purpose of Taxation
The fundamental purpose of taxation is to fund governments with the necessary revenues to govern and provide public services and amenities that are enjoyed by the general public (public infrastructure, security, education, social & health services, and others like waste collection). Further, principles of equity and fairness should guide those who have the privilege of determining tax systems. Therefore, tax systems that penalize or reward certain economic groups (wealth redistribution) are unfair.

Customs Duty Scenario
Since our taxes are primarily raised by custom duties, imagine two persons in the Bahamas (one “poor” and the other “rich”) who over a given year spend a total of $12,500 (inclusive of taxes) on goods from vendors (food stores, furniture stores etc.). With the average rate of duty being 25% (forget the stamp tax for simplicity), each of these persons would essentially have paid $2,500 in duty/tax to the government.

Let’s also assume the “poor” person makes an income of $20,000 per annum and the “rich” person makes $100,000. With these income amounts, the tax burden of the “poor” person would be 12.5% ($2,500/$20,000) but the tax burden of the “rich” person would be 2.5% ($2,500/$100,000).

Further, let’s assume both persons fully save/invest the balance of their income…the “poor” person saves/invests $7,500, and the “rich” person $87,500. Under our current system, realized gains from these investments would not be taxed.

Flat Tax Scenario
Now let’s consider another scenario, a flat tax of 10% of income, and contrast it to the custom duties scenario above. The goods bought from vendors would cost $10,000 (no customs duties), the “poor” person would pay a flat income tax of $2,000 (10% of $20,000) and the “rich” person would pay income tax of $10,000 (10% of $100,000). Notice: With the flat tax, both persons pay the same 10% tax burden, but the “poor” person pays $500 less than he would under custom duties and the rich person pays $7,500 more than he would under custom duties. Again, different amounts, but the same tax burden.

After their expenditure and payment of their 10% tax, the “poor” person will have $8,000 left for savings/investments and the “rich” person will have $80,000. And each will pay 10% on any realized gains from their savings/investments.

Now the “rich” person might complain about paying more taxes but he cannot honestly complain about the flat tax being unfair because it is not. The flat tax is a fair tax; customs duties and Value Added Tax (VAT) are not.

The Way Forward
Taxation is a complex issue and my writings on the subject are certainly not the alpha and omega on it, nor are they intended to be. But they are intended to make us think about our current tax system.

Perhaps because of certain existing economic realities in our nation’s economy, a pure flat tax can’t work. But we can start by acknowledging the need for tax reform and then move forward to do so. And as we do, lets not be fearful of the “we will chase foreign investors” Red Herring. To my mind, if we wisely approach taxation reform with input from the local and international communities, personal and corporate, resident and non-resident, we can in many respects become the Switzerland of the Caribbean.

And so as we move forward to replace customs duties with another form of tax, even if a pure flat tax is not practical for our economy, I believe we should at least embrace the underlying principle of the flat tax (equity and fairness to all) as our guide and starting point. I have no doubt that all fair-minded persons, Bahamian and Non-Bahamian would agree that equity and fairness are worthy values to embrace in this regard. With this approach, the Lord would be pleased because He hates inequity (see Proverbs 20:23), especially when it is against the poor.

Apostle Cedric Moss serves as Senior Pastor at Kingdom Life World Outreach Centre. Comments and feedback may be directed to: apostle@kingdom-life.org.

There is a flaw in your flat tax system. It looks good on paper but in the real world!

In the real world the "poor" would soon be whining about the tax saying that it is still to much of a burden. So smart politicians, who want their votes would soon lower the "poor's" share to 5% or to nothing! No doubt the "Church" would want to be exempt! Perhaps not yours, but most would and they would get it too!

The rich can always find a way out of taxes. They always have, they always will. They have the money to hire the brains to find the loop holes, and there are always loop holes.

So, who is left with the burden? The middle class. In all nations with an income tax system the middle class carries the burden. They always have, they always will. The poor can't, and the rich will not.

Taxes are like tatoos! They are easier to put on than they are to take off! Any government would still try to keep some of the taxes we have already. How much of our income already goes to feed the big beast (government)? Add it up some day! Don't say it will all be gone with a flat tax, it will not.

The new flat tax would soon rise, as the government, fat on our money, will want to get fatter still. The tax would climb - 20%, 30% 60% Do you know that in England (many years ago) the tax reached 90% (for upper tax bracket! Who, by the way, moved their money out of England as fast as they could.)

There is one more point. Do we really need a big government to "look after us?" Do we really need such an expensive "baby-sitter?" As I listen to talk radio here in Nassau, All I hear is, "Government do this for me, do that for me!" What has happened to us looking after ourselves?

We rely to much on government. Let us remember something that President Roosevelt said (I think it was he!) "Any government that is big enough to give us what we want is big enough to take it all way again."

The consideration of implementing a flat tax in The Bahamas no doubt is thought provoking! I appreciate Pastor Moss’s intention to make us think about it; as we should consider social equality applying sound Biblical principles.

The first reality is that we live in a broken world full of sin and sinners; we all are. Therefore finding a system of fairness through taxation would be very difficult as it involves human beings and the matter of TRUST and something call the HONOR system. The system in place does not follow Biblical principles.

If we were to seek the perfect taxation system to begin with; who would we trust to undertake a feasibility study which would tells the way forward? Who in our midst would be trustworthy and capable to prepare such a study and follow thru with implementation?

The majority of us would agree that NO ONE in government could be trusted; financial and investment boards are appointed not necessarily because of value of character and qualifications; but because of political connection. Any political and religious group would tend to be bias and others you and I may think of may not be up to the test of TRUST.

I am always impressed when I travel to first world countries, one has to take one’s hat off to them when traveling through clean, well lit and well painted streets where on the face of it everything works, “in the dream world” a TV commercial on an American pharmacy chain of stores announces “everything is perfect” “but because we don’t live in a perfect world there is…..Wallgreens”

Many of us have friends or family in these first world countries; all is perfect until the subject of taxation comes up in conversation. In Canada relatives pay up to 60% of their income to tax; in the USA it ranges from 45% plus, they confirm working for their government for at least the first FIVE months of the year.

When they speak of their burden; my comments of encouragement to them are “look at your efficient public libraries” “look at your good public schools” “look at your paved and organized streets” “look at your public health system”. In this context a flat tax would be a good alternative. But who could we trust to administer the funds properly so we can also enjoy the public advantages these funds should buy?

GOOD ABIDING AVERAGE BAHAMIAN CITIZENS MAY NOT HAVE A PROBLEM WITH A MANDATORY FLAT TAX; IF WE ARE GUARANTEED OUR MONEYS WOULD GO FOR THE IMPROVEMENT OF OUR INFRASTRUCTURE AND THE CREATION OF WORTHY PROGRAMS TO HELP EVERYONE EQUALLY.



Many a times I have witness at the airport Bahamian citizens and residents arriving with large amounts of boxes and suitcases check through CUSTOMS without paying a dime in duty; probably because is up to the Custom Officer to make that judgement decision at that moment and follow through with payment; and the arriving citizen who exercises the right to be DISHONEST. After all everyone else is!

I believe the powers that be are already considering taxation; the scary part is the issue of TRUSTWORTHINESS in the process of deciding who pays what and how to SAFEGUARD the funds. I was deeply disturbed the day I had to give my bank all the information about my income, my salary, other incomes; why else would they want to PIN US down to release all this information if is not for taxation purpose?

You may say to satisfy UNCLE SAM or because of drug trafficking; I would agree; but for what other reason?

CG:

My article calls for tax reform, not for a flat tax. I believe reform is needed on the basis that our current tax system primarily comprising of customs duties is unfair to the poor. I only raised the flat tax option because it is the fairest tax, but I never suggested a wholesale implementation of a flat tax. Again, as already stated in my article, some of our existing economic realities would make a pure flat tax impractical.

In order to better understand what you are saying, please answer the following questions:

1. Do you believe that fairness should be the basis upon which we try to build our tax system?
2. Do you believe our current tax system is fair and if so please explain?
3. If you believe that our tax system is unfair, what options should we consider to reform it?

Mrs. Carey:

You have identified some of the complexities of taxation and they have to be considered.

Sin (manifested in greed, dishonesty, selfishness etc.) and our fallenness make it difficult to find a "perfect" system of taxation. However, I believe that we need to begin to consider tax reform and moving from customs duties to VAT is more of the same with a different name.

I don't think any system we move to will be perfectly fair but I believe that we can get a more fair one than the one we currently have.

Thanks for your insightful comments.

CG:

My article calls for tax reform, not for a flat tax. I believe reform is needed on the basis that our current tax system primarily comprising of customs duties is unfair to the poor. I only raised the flat tax option because it is the fairest tax, but I never suggested a wholesale implementation of a flat tax. Again, as already stated in my article, some of our existing economic realities would make a pure flat tax impractical.

In order to better understand what you are saying, please answer the following questions:

1. Do you believe that fairness should be the basis upon which we try to build our tax system?
2. Do you believe our current tax system is fair and if so please explain?
3. If you believe that our tax system is unfair, what options should we consider to reform it?

Thank you for your reply. My remarks were addressed to the idea of a flat tax only because, as you stated in you last post "I only raised the flat tax option because it is the fairest tax..." I was trying to say that I doubt that.

Let me try to answer your questions.

1. Do you believe that fairness should be the basis upon which we try to build our tax system?
Yes, I do. I am sure that most people would agree with that, but how often does it work out. All taxes have an unfairness in them to some degree or another.

2. Do you believe our current tax system is fair and if so please explain? Our current tax system seems to be a kind of "pay as you buy" system. In that case it is fair in principle. But it is not being implemented in a fair manner. As the last poster said there are those who get away without paying import, or customs duty, or a cheaper duty, because they cheat. I am sure there are those who smuggle things over in their boats. I think they would be the same people who would cheat in any tax system. What we need is not a new tax system but a better way of collecting the taxes due.

We also have another tax system. It is one that is paid by the tourists (mostly.) Room tax, docking fees, departure tax, which we pay to, if we choose to travel. There are a number of these taxes.
We also have Land tax. If one has a house under a given value, one pays no tax. I am sure that those paying nothing would think that to be fair.

3. If you believe that our tax system is unfair, what options should we consider to reform it?
Our tax system does not need to be replaced. It needs to be property administered. Taxes need to be collected promptly and spent wisely. When people see their money doing things, good things, they are less likely to cheat and those that do cheat need to be taken down - fast - as an example to all. To change our tax system and leave the poor administration, the corruption and the wastefulness in place will achieve nothing. And that Sir, is not fair or right!

You seem to be approaching this from a somewhat religious aspect so let me say that, "Give unto Caesar what is Caesar's, and unto God what is God"s" is a message that needs more "pushing." If we did both, we would not be in the mess we are in now. Of course, a good dose of "Thou shall not steal" (Which is what we do when we cheat, or misuse tax money) should be thrown in also.

I agree. Income tax is the only thing that is going to clean this country up, but as CG said, in the Bahamas is will be tough to implement since every other law is broken by the majority on a daily basis.

I agree. Income tax is the only thing that is going to clean this country up, but as CG said, in the Bahamas is will be tough to implement since every other law is broken by the majority on a daily basis.

Rory, I agree with your assessment about the difficulty to implement any form of taxation beyond the one that we now have because of our general lawlessness as a nation. Although customs duties as a tax system is unfair, is is easy for the government to collect.

Even Value Added Tax (VAT) and sales tax are as unfair as custom duties (only difference is location of the tax) they will be difficult to collect unless the government posts tax officers on site businesses to collect them! Our experience with National Insurance is a preview of what we can expect regarding people paying and the government's willingness to enforce the rules.

My view is that any government that is serious enough to implement a fair income tax system should be serious to enforce it with serious penalties for those who cheat without favour. Anything less would be a disaster.

So hopefully, we will get a fairer system of taxation and a more law abiding nation together? I hope so!

I agree with you totally, actually everything you said, and the current tax is very unfair.


Rory, I agree with your assessment about the difficulty to implement any form of taxation beyond the one that we now have because of our general lawlessness as a nation. Although customs duties as a tax system is unfair, is is easy for the government to collect.

Even Value Added Tax (VAT) and sales tax are as unfair as custom duties (only difference is location of the tax) they will be difficult to collect unless the government posts tax officers on site businesses to collect them! Our experience with National Insurance is a preview of what we can expect regarding people paying and the government's willingness to enforce the rules.

My view is that any government that is serious enough to implement a fair income tax system should be serious to enforce it with serious penalties for those who cheat without favour. Anything less would be a disaster.

So hopefully, we will get a fairer system of taxation and a more law abiding nation together? I hope so!