By Raffique Shah
January 29, 2012
PRESIDENT Barack Obama’s bold move to seek to apply a tax rate of 30 per cent to America’s super-rich should serve as a catalyst of sorts for Finance Minister Winston Dookeran. Dookeran said recently that his ministry would soon review the income tax regime in Trinidad and Tobago. Changes to this country’s income and corporate taxes were last made in 2006. Then, the Patrick Manning government raised the personal allowance for individuals to $60,000, and applied a fixed rate of 25 per cent tax on all chargeable incomes above that.
Obama’s proposal to impose a “rich tax” comes against the backdrop of the “Occupy Wall Street” protests that have spread across developed countries. The protestors, with much justification, claim that 99 per cent of ordinary people are made to bear the burden of taxation while one per cent, comprising multi-millionaires and billionaires, get away with paying ridiculously low taxes. The super-rich also incurred the wrath of low to middle-income earners after the financial crisis of 2007-2008 exposed their culpability, as well as the obscene “packages” and bonuses they awarded themselves even as taxpayers in general paid heavily to clean up their mess.
American investment guru Warren Buffet, one of the world’s richest men, has long argued that on a pro-rated basis, he pays much less tax than his secretary does. Buffet says that taxation on investment earnings for people like him stands at around 15 per cent while the vast majority of Americans pay up to 35 per cent of their wages and salaries in taxes.
Obama’s “rich tax” proposal will meet stiff resistance from most Republicans, which would make it difficult for the President to implement, since those who control the House of Representatives and the Senate, including Democrats, are multi-millionaires. But he does have the support of that country’s working and middle classes, not to add the growing pool of unemployed. Interestingly, super-rich George Soros also endorses the move.
We do not know what Dookeran and the technocrats at the Ministry of Finance have in mind as they review our taxation regimes. When the PNM government introduced the 25 per cent, across-the-board tax, it was meant to simplify a two-tiered system that saw individuals paying between 28 and 35 per cent up to 2002, and 25 and 30 per cent between then and 2006. Corporation tax on chargeable profits has been reduced from 35 per cent in 2002 to its current level of 25 per cent. Corporations also pay a 0.2 per cent business levy and a 0.1 per cent Green Levy.
Since 2006, much has happened to open the eyes of wage earners and the salaried middle class. The collapse of Clico and the Hindu Credit Union, and the ongoing enquiry into their affairs, have been revealing. The annual earnings and bonuses paid to senior executives at CLICO, running into tens of millions of dollars a year, have shocked those who get by on taxed earnings of less than $100,000 a year. The lifestyles of the rich and naughty have angered ordinary citizens who bear the brunt of taxation, and who, through government, have been forced to cough up $7 billion to bail out CL Financial and the HCU. People wonder if the recipients of these mind-boggling “packages” paid taxes on the obscene millions that they paid themselves at the expense of policyholders and depositors, and ultimately, taxpayers.
Like Obama, Dookeran has an opportunity to bring some equity to the tax table. For far too long, those who are on fixed incomes have borne the burden of taxation. Their wages and salaries are taxed before they are paid. Many of them are over-taxed at source, but do not even know that since they no longer file annual returns. Then we have the anomaly that sees workers who earn, say, $8,000 a month, pay 25 per cent of everything above $60,000 a year in tax, the same proportion that someone who earns $10 million a year pays.
That is manifestly unfair. Indeed, given the cost of living today, Dookeran and his technocrats need to ask themselves if they ought not to raise the tax ceiling to $100,000 a year, the barely-comfortable range for an average family. Having noted that, the mass of “wage slaves” who earn less than $60,000 a year must feel as if they are trapped in a low-income doghouse. Pity, too, the underemployed, the unemployed and retirees, who must survive on much smaller sums.
I am not suggesting that high-income earners, many of whom deserve their packages, be punished for being successful. Among this group are people who studied hard to attain skills and academic qualifications. They burned the proverbial midnight oil while others partied or “limed”. And many of them work very hard, beyond normal hours, to enhance the establishments where they are employed or conduct business. It would be unjust to deny them the fruits of their sacrifices.
But as people move up the income ladder, they have a social responsibility to others who are less fortunate. I do not refer here to “lochos” who are not willing to lift a finger to help themselves, people who believe that society owes them everything, who justify their criminal activities by simply crying foul.
Dookeran may want to review the tax-free ceiling and apply the current 25 per cent to those who earn less than $1 million a year. Beyond that, he may look at 30 or 35 or even 50 per cent. The BIR must also bring into the tax net people who, as professionals, entrepreneurs or sole traders, evade taxes. With taxation being a main source of Government’s revenue, every dollar counts. The tax debate has just begun.