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Over the years there has been a lot of discussion in the business community and government about tax reform. Those two words are so powerful. They can create wealth and economic growth or can create a society of wealth for a few.
The Government has the ultimate power of decreasing or raising taxes. Over time the most likely scenario is increased taxes. The Government of Belize generates most of its revenues by taxations.
To list a few of the taxes: Import Duty, Revenue Replacement Duty, Environmental Tax, Social Security payments, Property Tax, Airport Exit Tax, Stamp Duty, Foreign Exchange Tax, GST, Business Tax, Income Tax, PAYEE taxation, late payment penalties, Hotel Room Tax, Fishing License, Forestry License, Driver’s License fees, building permits, garbage collection fees, Rider Tax local airlines, Trade License fees, Liquor License fees, car license fees … And the list goes on.
In looking at the Income Tax regime and the GST regime, we can see that there is a vast area for improvement. It seems that there is a formal and an informal market in which many businesses that should be GST-registered are not, and some that are GST-registered are not complying with the law as they should. There seems to be a lot of evasion.
In reference to evasion, one also needs to take into consideration that the number of Belizeans that travel to Chetumal and Melchor are not paying GST on those goods and services, and they may also not be paying their proper share of import duties or business tax on any of the merchandise they are buying for personal consumption. It is estimated that over 1 million entries are recorded of persons travelling to these destinations which can amount to over 450 million dollars worth of goods and services being purchased outside of national territory. That is a loss of revenue to GOB of over 50 million dollars per year in taxes.
There are a lot of products that are GST-exempted and these include medicines and a lot of food items. For example, let’s say rice, beans, chicken, fish, shrimp, beef, pork, flour and other food stuff do not pay GST. This was done to be able to keep food prices low for the local population to consume. We are approximately 400,000 persons, of which I would say 60% are less than 30 years old. The work force is listed at 145,000 persons. The tourism that comes into the country as overnight is somewhere around 350,000 and cruise tourism is 1 million per year. All these people are eating the same rice, beans, beef, pork and fish and are not paying GST. Oh where is the sense in that???
Belize has a GST rate of 12.5% and Mexico has a GST of 16% and yet everybody wants to go to Chetumal to shop, go to the mall, movies and restaurants and yet they feel hard to pay for goods and services here with a 12.5% GST.
If everyone paid GST and if everyone spent their money in Belize we would have a thriving economy and GOB would not have to be hitting us hard at the gas pump or on our pay checks.
Give every citizen of this country a tax ID number which they will use when they go to purchase at the store or use services at any location and eat at any restaurant. These tax invoices will be submitted to the tax department and a refund of up to ($25,000* 25%) per year will be allocated per registered employee as a tax deduction. This is to replace the present system that we have which is an automatic tax relief up to $25,000 of your salary. NO RECEIPTS FROM CHETUMAL OR MELCHOR.
The automatic tax exemption that one gets at PAYEE deductions will be repealed and this new system will be implemented. This will assure that every person requests a GST receipt, and they will shop in Belize and not Chetumal and the GST will have a good policing system since every registered GST business will need to provide a proper declaration at the end of the month.
Include GST on all goods and services even if we do a lower rate on locally produced goods. This will allow everyone to be contributing to the tax system and make it fair and across the board.
A system of social assistance (safety net) will be implemented so that the families that are not meeting certain thresholds can get the goods and services they need. These families will be monitored and priority will be given to them for vocational training to get them out of the subsidy programs since these programs are only for a short-term assistance.
Free education all the way to university should be made a priority and vocational training should be zero cost.
Business tax should be applied at a 25% rate and if any business at the end of the year paid more than the 25% via the BTAX system, a complete refund will be given to those businesses. An audit will be conducted and a very fair and equitable system will be implemented to assure that these businesses are not over-paying the tax via the BTAX system which is skewed in favor of large businesses.
This will be reduced to 10-15% maximum on most products. Lower import taxes will allow for less corruption and under-valuation. It will allow our products and services to become very competitive and there will be no need to go to Chetumal and Melchor to access lower goods and services. In Panama, for example, import taxes are 5%. In Guatemala import taxes are 5 to 10%. In Mexico, due to NAFTA, import taxes are 2% and zero in many instances. A lower import tax will allow for consumer taxes to be implemented at rates that will allow GOB to meet its commitments and to be progressive.
There is a lot more discussion that can happen around the issue of tax reform and the above examples are a clear indication that if there is the political will we can get this done in a very short period of time.
The IMF, the IDB and the World Bank have made various studies related to tax reform in Belize and various papers have been submitted. The problem in some instances is that we are so committed to external lenders that we are limited as to what we can do. But if we do not do anything we will be doomed. The quicker we can get our house back in order the quicker we can get out of these debts and have a country with a GDP of 5-7% and a population that is well educated and working.
We are continuously making and allowing our resources to flow out of our national tax territory and the tax burden is only shared by a very limited number of residents and work force.
To finalize this essay I will end with this so that we can give it some thought as to the fairness of our tax system: An employee registered to work in Belize and registered with the Social Security that earns $500 per week. Due to the tax relief he is getting he pays no PAYEE tax. This employee pays $20.00 towards his Social Security contribution; the remainder is paid by his employer.
If that employee consumes food items that are GST-free, then he is not contributing anything to the tax system of GST, which is a consumer tax. If at the end of the week he goes to Chetumal to buy whatever groceries he may need, school books and other items that may pay GST here in Belize, he then comes across the border and pays nothing. THAT PERSON HAS NOT CONTRIBUTED ANYTHING TO THE TAX SYSTEM. That employee qualifies for free education, free health care and many other benefits provided by the Government.
Do you think this is fair? Who paid for the services for this person? Well, out of the $125,000 registered employees maybe 80% of them are in this threshold.
A tax reform would bring these people into the tax loop and have them pay their fair share. That is how an economy should work.