by Kevin Ramnarine
In 1977, Margaret Thatcher (not yet PM of Britain), speaking at the University of Zurich called for a “revolt against excessive taxation”. Excessive taxation had stagnated Britain in the 1970’s. In 1979 when she became Prime Minister she reinvented the British economy by lowering taxes and privatizing state enterprises. The effect was a renewal of the British economy at all levels. Forty years later the Labour party’s socialist leader Jeremy Corbyn wants to increase taxes and nationalize state enterprises. Mr. Corbyn is an admirer of Karl Marx.
Taxation is an emotive issue. Countries have gone to war over customs duty (a form of taxation). Governments have fallen because of taxation. In recent weeks, we have had a robust debate in this country about the property tax. Such discussion is a sign of a healthy democracy.
Taxation is not new. In ancient India, the Arthashastra written some 2300 years ago advises that taxation should not inhibit growth. The Arthashastra was way ahead of its time. Moving to Europe, in 1066 following his victory at the battle of Hastings, William the Conqueror imposed the first property tax on the people of England. He commissioned valuators to go across England to record property that included cows and pigs. The record was compiled in what is known as the Domesday book. This is the origin of property tax. It became part of the English tax system and was taken to the United States and throughout the British Empire.
In the Gospel of Saint Mathew Chapter 22, the Pharisees ask Jesus whether it is lawful to pay taxes to the Emperor. Jesus’ famous answer was, “Render unto Caesar the things that are Caesar’s, and unto God the things that are God’s’. The quote is seen by Biblical scholars as speaking to the relationship between religion and government or the separation of church and state.
In 1773, another tax related issue would be the spark that led to the American revolution. The Tea Act of 1773 mandated that American colonists buy their tea from the East India Company. Prior to that the taxes on most imports had been removed with the exception of tea. The tax on tea and the imposed monopoly of the East India company was the tipping point for the colonists who argued that there could be “no taxation without representation” and protested by dumping a shipment of tea in the Boston Harbour.
From the Arthashastra to the New Testament to the American Revolution, tax is controversial and emotive. Is T&T in the throes of excessive taxation?
In the last 21 months, we have had the turning of the tax screws by taxman extraordinaire, Colm Imbert. He has tripled business levy, tripled green fund levy, put a controversial 7% tax on online shopping, increased taxes on persons earning over one million per year, applied VAT to thousands of items that were hitherto zero rated, increase customs and excise duties on alcohol and tobacco, increased the customs duties and taxes on luxury vehicles by 50 percent. The list may not be exhaustive. The tax on online shopping has been challenged in court and the property tax is headed there too. Let the courts decide if these are just taxes.
Taxation is primarily for financing public expenditures. Taxes are also used to promote other objectives, such as equity, and to address social and economic concerns, to stimulate investment and innovation. Taxes affect economic behaviour such as levels of savings, supply of labour, the decisions of firms to produce, job creation, investment and innovation. A tax regime should reward production and penalize consumption not the other way around.
I am ideologically against excessive taxation. I am all for the State collecting what is due to them and charging for what is fair to finance the operations of the country. I am all for the State going after tax evaders. I am all for a well-resourced and efficient Board of Inland Revenue. I am against a system of taxation that drowns the entrepreneurial spirit. I am against a system of taxation that discourages investment. I believe that the current Minister of Finance is dangerously tipping the tax regime in that direction. The case of taxation in Ireland is instructive.
In my years at the Ministry of Energy, we never increased taxation on the energy sector. I stand by that decision. It is a decision that was strategic and one for which I was criticized by the current Government. We simplified the petroleum taxation regime, simplified the production sharing contracts, reduced the tax rate and gave incentives in the form of accelerated capital allowances. The country will greatly benefit from these decisions in 2017. In a few weeks, we will see the fruit of these interventions in the form of new gas production and new discoveries of natural gas.
An enlightened taxation system can stimulate growth and investment. A well-designed system of tax incentives can be the catalyst for economic diversification. Excessive and burdensome taxation will achieve the opposite. The latter sets in motion a vicious cycle which does not promote economic growth.