PHILIPSBURG–The five-per-cent turnover tax (ToT) is “disruptive” and an “impediment to economic growth” due to its “multiplier effect” on the cost of goods and services, Finance Minister Richard Gibson told Parliament on Wednesday.
“We have to do away with it or move it down,” Gibson said of the ToT. He has the same belief about the country’s profit tax. It is tough to enforce the profit tax system, he said. The system is “human resources intensive,” a resource Government has in limited supply.
An approach to taxes that is “easy to collect” and “does not hit the small man” needs to be found, Gibson said.
The World Bank and International Monetary Fund (IMF) both have reported that direct taxes such as ToT are disruptive to economic growth. The monetary agencies have advised a move to a value-added tax, Gibson said in the meeting of the Central Committee of Parliament on the draft 2016 budget.
The downside of moving to a value-added tax is that it will lead to a significant reduction in Government revenues, Gibson said. “Ways and means need to be found first to replace the ToT” before a change is made, he said. “We will have to take a deeper look at the ToT.”
The tax also “affects employment,” as businesses can hire fewer people due to operational cost, Gibson said in response to questions from Member of Parliament (MP) Tamara Leonard about the ToT’s workability.
Leonard pointed out that Government has had diminishing yields in spite of the increase in the tax from three to five per cent some four years ago.
On the shrinking yield from ToT, Gibson said the increase of ToT contributed to “cheating” and had created “parallel importation” that results in fewer purchases locally. “Amazon and other online shopping are having a ball,” he said, explaining the dip.
On increasing tax compliance, Gibson said the letters from the Tax Office to delinquent taxpayers needed to have an air of finality and prompt immediate action, working on collection and compliance by Government via the Tax Inspectorate.
Government in the past has had “an explosion of hiring consultants for everything under the sun,” said Gibson said, adding that he had stopped all pending consultants’ contracts on taking office last year. “We need to hire people in Government to do the work,” he said. “We need to do much more on our own.”
Government “will have to review” the existing consultants, Gibson said.
Source: The Daily Herald ToT is ‘disruptive’ to growth, says Gibson
I agree with the Minister 100%, the TOT is a hidden tax that is very difficult to control. A sales tax is simpler to enforce and would broaden the tax burden.
All we want is a fair system where everyone contributes!
There is one aspect of the TOT that I have never hear anyone mention and that is the net inflationary results it has on the end consumer.
Here it is:
An exclusive Distributor buys and imports goods let us name the product X and he sells it to a wholesaler Y (1 time charge TOT) including TOT on the cost of x plus profit and misc.
The wholesaler Y sells the product x to a small retailer, the cost of x which has already increased dramatically increased by Y and includes TOT on his cost plus profit and misc. (2 times charge TOT).
x is now sold to the consumer which already includes 2 x TOT paid by Y on the product and the wholesaler and now the cost is now calculated plus his profit and misc and sold to the end consumer. Thus triple TOT and because the TOT is levied on the total amount it is not only on the net cost of the product but on everything that needs to be factored in for the business man to cover his operation, which included utilities, wages etc. the net result on inflation can be ….. well guess for yourself.
Very good point and completely agree.
Absolutely right, and it has been mentioned quite often. Another negative where it concerns TOT is that you are not allowed to put it on a bill. It would be better if it was a line item on your bill. If we then move away from the cascading effect by at least giving tax credits for TOT already paid on an item, at least it can be accounted/audited. The political issue of course is that if we look for a replacement for TOT in a VAT or a Sales Tax, that percentage would need to be a lot higher than 5% to generate the same tax revenue, probably close to 10-12 % on a sales tax and even higher on a VAT. While pricing would not change 12% tax doesn’t sound as good as only 5%. Then of course there is the issue in your example above where tax is actually charged on tax, that doesn’t seem very fair either. There isn’t a lot of incentive for government to really do something about this
That has been talked about many times in the past and even the Minister mentioned it in the media.
Very good Minister Gibson! It’s about time to abolish this most disruptive tax which should be replaced by a Sales Tax (which it is now in disguise). Duty Free status is a farce as every business adds the ToT onto their selling price making it a Sales Tax de facto.
Do away with Profit Tax one time and just collect the Sales Tax which will be a fair tax for all (residents, tourists, legal citizens, illegals etc). But certain goods need to be exempted just as the basic goods that are in the ‘basket’ at present.