TAXES AND TAKE-HOME PAY

Nov 30, 2016 Features / Columnists, Peeping Tom

The Budget is not all that bad. If you are an accountant, you would be quite impressed at the balancing act performed by the Minister of Finance. He has to find monies to finance increased expenditure in 2017. He had to significantly increase revenues, and at the same time he had to provide tax relief both to workers and to the private sector. He achieved all of these things through his controversial tax measures.
The Minister reduced the VAT to 14% but widened the services on which is applied to include the consumption of electricity and water above the sum of $10,000. He gave with one hand and he took back with the other hand.
But in terms of income tax, there was creativity by the Minister. He was able to come up with a formula that would allow for an increased threshold, a progressive rate of taxation which effectively taxes higher incomes group more than lower ones, and, at the same time, achieve increases in take-home pay for all grades of workers. This is an achievement in itself.
The danger of course is the use (some will say abuse) of the tax mechanism to achieve increased incomes for workers. This approach is not sustainable. The use of reduced taxes should never be the means for ensuring increased incomes for workers. It simply is not the right tool, and over the long term, has serious implications for government.
The use of taxes should be limited to financing infrastructure, social services and other public services such as security, defence and diplomacy. When taxes have to be used to ensure a higher take-home pay for workers, it denies these sectors of financing.
A wage debt should be financed by increased wages paid from taxes but not take the form of increasing thresholds and tax allowances. Workers need more money in Guyana. Forgoing taxes is not the answer to paying them better. They should be paid better period.
Everyone should pay taxes. All citizens have an obligation to pay taxes. The President should also pay taxes. When there is a threshold which excludes thousands of persons from the tax net, then this does not encourage the practice of every one paying taxes.
Increasing the threshold, as has been pointed out before, acts as a subsidy to the private sector. Instead of them having to finance wage increases for their workers, this increase is borne by taxpayers.
The use of tax mechanism to increase the take-home pay of workers distorts the tax burden. If certain categories of workers such as PAYE workers make the highest contribution to taxes, then when the threshold is increased, it means that it is those workers who have to bear the increases which benefit categories, such as self-employed persons, whose contribution may not be as much as those who pay as they earn.
Finally, using the tax mechanism to increase the take-home pay for workers can complicate the tax system. Tax rates should be limited. The system should be simple.
The government has further compounded the country’s tax system by having one rate for incomes below $180,000 per month and another rate for incomes above that. It has a reduced VAT rate, but certain benefits such as the input taxes are likely to be eroded. The system has become more complicated, and this is never good for the efficiency of a tax system.
It can be argued also that using the tax mechanism to increase take- home pay also places pressures on consumers. The $3.9 billion which the Treasury will lose as a result of the reduced income tax rate will have to be recovered through other sources, particularly by increased taxation on consumption.
The government will be recovering the taxes lost by charging VAT on water and electricity. Relief in income is compensated for by burdens at the level of consumption. But that is logic behind accounting. Both sides of the equation have to be balanced.

Discover more from Kaieteur News

Subscribe to get the latest posts sent to your email.

Latest News