The Anguilla United Front public meeting in South Hill last Thursday was "cut short" in the wake of news from the Island Harbour community that two of their fishermen had not returned from one of their usual fishing trips within the usual time frame. In an act of solidarity and genuine concern, all the speakers and most of the attendees journeyed to Island Harbour to support the impromptu vigil of family, friends and well-wishers who had assembled in prayerful hope for their return. Their prayers were swiftly answered and by two o'clock the following morning both souls had returned safely to their loved ones and to the community. It was gratifying to see the number of Anguillians who had come to support the community on shore as well as those fishermen and seafarers who participated voluntarily in the rescue effort at sea. It is my understanding that as a consequence of prompt initiatives by these persons in the community, official government agencies normally involved in such exercises were not required. This was yet another demonstration of Anguillians coming together in times of challenge.
One of the items that could not have been fully ventilated at that public meeting, because of its curtailment, was the Interim Stabilisation Levy Act (2011). It has now been scheduled for its first reading in the House of Assembly on Wednesday, March 16, 2011. In my column last week I raised a number of concerns about the Levy and questioned whether any serious consultations could take place at such a late stage. Having subsequently received a copy of the Act to provide for the imposition of the Levy I am all the more concerned that there is need for further discussion on this issue. The consistency of my concerns can be noted from my June 26, 2010, Article: "On a point of Order" in which I stated: "I need to learn more about the proposed Stabilization Levy. For example I assume that the proposal is that it be collected by the social security system in the implementation stage. However, I am also concerned that it appears to be simply going into the consolidated fund. I would like to see a fund of this kind being established for specific services to the public like health, education, sports, and community development etc., that is, a Social Services Levy. Especially in these times when we want to ensure that these areas have available resources so as to guarantee social stability. With the right answers and a proper rationalization of the amount, that is 3,4, or 5% --- I can understand this government's proposal for this temporary measure of imposing a Stabilization Levy."
Those comments were made in the context of the areas touched upon in the Chief Minister's supplementary Budget Address made in June 2010. I also spoke generally to the concept of taxation in the same article stating: "I would suggest that there should be at least four considerations in all tax measures, namely, they should be equitable and just, that is, fair to everyone; the collection process should be efficient and effective; the yield should be optimum, that is, the cost to collect the revenue should be low; and they should be supported by law. It also helps if the community deems that those taxes will be put to good use. And that is why targeted taxes or levies for specific services are so easily sold."
Upon receiving a copy of the Bill for the Interim Stabilisation Levy, my colleagues and I assembled to make an objective analysis taking into account the criteria I outlined in the aforementioned article as well as in subsequent discussions. In summary form here are some key facts:
· The first sentence of the bill provides for: "The imposition of a levy on income from employment..." For clarity: According to one of the senior officials from the Ministry of Finance "lets call a spade a spade --- a levy on income from employment is income tax!!!
· The tax rate is: 1) 6% of total wages, salaries, service charge, bonus, fees, allowances, commissions etc. up to a maximum of EC$7,000 per month paid: 3% by employees and 3% by employers excluding the Government, Government Agencies, NGO's and Churches incorporated in Anguilla. 2) 6% of earnings from self-employment persons up to EC$7,000 per month.
· Self-employed persons include: a.) Farmers, fishermen, taxi-drivers, street vendors & traders. b.) Self-employed plumbers, electricians, carpenters, barbers, beauticians, shoemakers. c.) Directors, owners, proprietors, of businesses including shops. d.) Lawyers, doctors, architects, dentists, consultants, chemists, engineers.
As it is now written and presented to members of the House for the first reading these are some particulars of the Bill that we highlighted for further consideration. I assume that by the time of writing there may be some amendments already made but for purposes of this column and to ensure that our concerns are noted we feel duty-bound to place them on record as follows:
· The law means that 6% will be deducted from the service charge of hotel and restaurant employees. Note: Social Security set up under the Hon. James Ronald Webster makes no deductions from service charge paid to hotel and restaurant employees.
· There is no time period stated in the Bill neither is there any date when this "interim levy" will come to an end. Note: We believe that the Law should be in place for a limited or prescribed period of time.
· The Government may reject any calculation of the levy submitted by employers and the self-employed and may then make its own assessment of the tax to be paid. Such assessments are protected from legal challenge and the onus/burden is on the employer or self-employed to disprove the Government's assessment.
· Harsh penalties are included in the law consisting of fines of up to EC$40,000 and imprisonment for up to two years or both.
· Likely outcome: This law will create additional bookkeeping costs for the self-employed to keep detailed records of their income and to calculate and pay the levy to the Government.
· The low and lower middle-income employees will bear the heavy burden of the levy. Definition: Our people who have the greatest difficulty to make ends meet in these difficult economic times. (I will explain this further later).
· While an upper income limit of EC$7,000 per month has been set on which the levy will be charged, no sympathy or consideration has been given to the lowest paid among our people, those earning less than EC$2,000 per month. Result: The least able will be forced to bear a heavier burden than the middle income and the highest paid in the economy. (I will also explain this further)
· General Comment: The interim Stabilization Levy Act may be neither interim nor stabilizing. It is indefinite in the period of its application, will be a heavy burden on poor people and greatly destabilizing to their lives. It amounts to unjust and unfair imposition the poorest among us for the benefit of those who are better off and better able to carry the tax burden that the levy will impose.
This and the other high level taxes have been a result of the Government's inaction, reluctance, indecisiveness and preoccupation with the blame game and conspiracy theories. If you look back at the Chief Minister's supplementary Budget Address in June 2010, he was at the time talking about a communication tax of 5%; a temporary increase in customs surcharge of 1% to 3% effective January 2011, and a stabilization levy of 5%. However, over the ensuing period he has been refusing to negotiate with the FCO, he has been ranting about independence, quarrelling with the Governor, "cussing out" developers and blaming the AUF for our financial and economic predicament. As a result over those nine months the communication tax has gone to 7%; the customs surcharge has gone to 6%; the levy has gone to 6%; and there has been an additional fuel tax of EC$2.00 per gallon.
Let me use a "man on the street analogy" to explain what has happen. If you were delinquent on your house loan at the bank and you were asked to come in and talk with your loan officer and over a period of nine months you refused to sit down and talk with him/her and you came up with a range of reasons including claiming that the loan officer does not like you or that your wife caused you to be delinquent because she is having an affair with the loan officer --- what do you think would happen? The Bank will threaten to take your house! And when you eventually decide to settle down and negotiate the amount of money you actually owe would have increased considerably. Likewise because the Government spent so much time bickering and blaming we now have to pay more in order to make up for the twelve months of lost revenue. That is why we are so hurriedly trying to impose such high taxes.
But there is also another side to that story. Had we gone to the bank earlier to negotiate we could also have been able to ask for more time to pay down the loan and consequently incur smaller payments. In my article of December 31, 2010: "We'll take a cup of kindness yet"I wrote: "The Chief Minister must settle down and explain the differences in the Anguilla situation and outline to the British Government the negative impacts of its recommendation on a small and extremely vulnerable state like Anguilla. But most importantly he must also be able to present a sound proposal as to how he intends to retire the deficit and restore fiscal and economic stability over the next three years. Such a proposal may even suggest that five rather than three years would be more feasible for returning to a balanced budget position." The point I am making is that in an atmosphere of mutual respect and cooperation the British Government could have been persuaded to agree to five years or more rather than three to reach a balance budget situation. Such an agreement would have allowed for lower taxation levels in the short term and with a much more positive approach to growing the economy through targeted spending and increased private sector investment --- the possibility of an even quicker return to a balanced budget situation.
Returning to my strong view that the Stabilization Levy is inequitable let me explain as promised. It is now written in the Bill that an upper income limit for the tax has been set at EC$7,000. In this sense anyone who makes over that amount pays a lower percentage of his/her income. Put simply if you earn $14,000 you will actually only be paying 1.5% tax on your earnings because half of what you earn is tax-free. You are therefore paying a lesser percentage of your income in taxes than the lower income worker who is earning $3,000 per month --- that individual is paying 3% percent of his meager earnings to the taxman while the you are paying half that rate. While the idea of a cap or upper income limit may have some justification why not then devise some balance where a lower limit is established as well. There are two possible options: 1.) Create a lower limit where persons earning less than say $2,000 per month get an exemption or a reduced rate and increase the upper limit to say $9,000 or $10,000 per month. 2.) Create a graduated levy beginning from 3% to 6% overall rate with perhaps a much lower limit and an even higher upper income limit. This can be done while at the same time ensuring that the desired yield for the levy is achieved. In short while there is a need to generate more revenue we must ensure that we come up with creative adjustments to ensure a measure of fairness and equity.
Among the other issues I mentioned is workers' service charge which this Government and in particular the Parliamentary Secretary and the Elected Member for East End during their poor performance as a negotiators for the Cap Juluca IOU swore to protect. Hopefully, growing pressure from irate hospitality sector workers will force that concession. Already I have heard that "circus master" is on the move with explanations and excuses. The IRS style penalties contained in the Bill are also a cause for concern and particularly so in a "no direct taxation" culture. Compliance laws are important for ensuring fairness in any tax system but they should not lend themselves to creating criminality without due regard for the nature of the environment in which the system is to operate. In this context the self-employed will require special attention.
I must make the point again that what is being proposed here is a far cry from what the AUF was accused of implementing during the election campaign. There are two documents that the present government would be well advised to read. These documents were done with homegrown expertise not imported consultants. The first one was produced by the Ministry of Finance to address the 2000 - 2002 recession on March 14 2002 entitled: "Measures to restore fiscal stability in Anguilla over the period 2002 to 2004" it was a document which made the case with the British Government that the AUF administration had a plan to achieve fiscal stabilization with a strategy that was sensitive to the human consequences of the adjustment process. It not only worked --- it was also responsible for the period of prosperity that we enjoyed from then until 2008. The second document also produced by the Ministry of Finance to address the present global recession on June 5, 2009 is entitled: "Anguilla Fiscal and Economic Recovery Plan 2009 - 2011." The obstacles to the implementation of this plan are well-known --- not the least among which was the 2010 election and the deliberate efforts by the AUM to manipulate the issues to its advantage through lies and innuendo. While opposition groupings may feel vindicated by the present woes of the AUM and its inability to deal with the issues. It is sad that we still must suffer even more from their shameless political posturing.
But in the wider community where some persons genuinely believed that the AUM would make a difference --- bringing the Stabilization Levy in its present form into law on April 1, 2011 would clearly make it as our Party Chairman calls it a "Destabilization Levy". And the choice of the date for implementation being April 1st 2011 could lead many Opposition supporters to break out in that well-known derisive chant, chiding embarrassed AUM supporters: "You born on All Fools Day!"
Victor F. Banks
Sachasses Estate
March 15, 2011
One of the items that could not have been fully ventilated at that public meeting, because of its curtailment, was the Interim Stabilisation Levy Act (2011). It has now been scheduled for its first reading in the House of Assembly on Wednesday, March 16, 2011. In my column last week I raised a number of concerns about the Levy and questioned whether any serious consultations could take place at such a late stage. Having subsequently received a copy of the Act to provide for the imposition of the Levy I am all the more concerned that there is need for further discussion on this issue. The consistency of my concerns can be noted from my June 26, 2010, Article: "On a point of Order" in which I stated: "I need to learn more about the proposed Stabilization Levy. For example I assume that the proposal is that it be collected by the social security system in the implementation stage. However, I am also concerned that it appears to be simply going into the consolidated fund. I would like to see a fund of this kind being established for specific services to the public like health, education, sports, and community development etc., that is, a Social Services Levy. Especially in these times when we want to ensure that these areas have available resources so as to guarantee social stability. With the right answers and a proper rationalization of the amount, that is 3,4, or 5% --- I can understand this government's proposal for this temporary measure of imposing a Stabilization Levy."
Those comments were made in the context of the areas touched upon in the Chief Minister's supplementary Budget Address made in June 2010. I also spoke generally to the concept of taxation in the same article stating: "I would suggest that there should be at least four considerations in all tax measures, namely, they should be equitable and just, that is, fair to everyone; the collection process should be efficient and effective; the yield should be optimum, that is, the cost to collect the revenue should be low; and they should be supported by law. It also helps if the community deems that those taxes will be put to good use. And that is why targeted taxes or levies for specific services are so easily sold."
Upon receiving a copy of the Bill for the Interim Stabilisation Levy, my colleagues and I assembled to make an objective analysis taking into account the criteria I outlined in the aforementioned article as well as in subsequent discussions. In summary form here are some key facts:
· The first sentence of the bill provides for: "The imposition of a levy on income from employment..." For clarity: According to one of the senior officials from the Ministry of Finance "lets call a spade a spade --- a levy on income from employment is income tax!!!
· The tax rate is: 1) 6% of total wages, salaries, service charge, bonus, fees, allowances, commissions etc. up to a maximum of EC$7,000 per month paid: 3% by employees and 3% by employers excluding the Government, Government Agencies, NGO's and Churches incorporated in Anguilla. 2) 6% of earnings from self-employment persons up to EC$7,000 per month.
· Self-employed persons include: a.) Farmers, fishermen, taxi-drivers, street vendors & traders. b.) Self-employed plumbers, electricians, carpenters, barbers, beauticians, shoemakers. c.) Directors, owners, proprietors, of businesses including shops. d.) Lawyers, doctors, architects, dentists, consultants, chemists, engineers.
As it is now written and presented to members of the House for the first reading these are some particulars of the Bill that we highlighted for further consideration. I assume that by the time of writing there may be some amendments already made but for purposes of this column and to ensure that our concerns are noted we feel duty-bound to place them on record as follows:
· The law means that 6% will be deducted from the service charge of hotel and restaurant employees. Note: Social Security set up under the Hon. James Ronald Webster makes no deductions from service charge paid to hotel and restaurant employees.
· There is no time period stated in the Bill neither is there any date when this "interim levy" will come to an end. Note: We believe that the Law should be in place for a limited or prescribed period of time.
· The Government may reject any calculation of the levy submitted by employers and the self-employed and may then make its own assessment of the tax to be paid. Such assessments are protected from legal challenge and the onus/burden is on the employer or self-employed to disprove the Government's assessment.
· Harsh penalties are included in the law consisting of fines of up to EC$40,000 and imprisonment for up to two years or both.
· Likely outcome: This law will create additional bookkeeping costs for the self-employed to keep detailed records of their income and to calculate and pay the levy to the Government.
· The low and lower middle-income employees will bear the heavy burden of the levy. Definition: Our people who have the greatest difficulty to make ends meet in these difficult economic times. (I will explain this further later).
· While an upper income limit of EC$7,000 per month has been set on which the levy will be charged, no sympathy or consideration has been given to the lowest paid among our people, those earning less than EC$2,000 per month. Result: The least able will be forced to bear a heavier burden than the middle income and the highest paid in the economy. (I will also explain this further)
· General Comment: The interim Stabilization Levy Act may be neither interim nor stabilizing. It is indefinite in the period of its application, will be a heavy burden on poor people and greatly destabilizing to their lives. It amounts to unjust and unfair imposition the poorest among us for the benefit of those who are better off and better able to carry the tax burden that the levy will impose.
This and the other high level taxes have been a result of the Government's inaction, reluctance, indecisiveness and preoccupation with the blame game and conspiracy theories. If you look back at the Chief Minister's supplementary Budget Address in June 2010, he was at the time talking about a communication tax of 5%; a temporary increase in customs surcharge of 1% to 3% effective January 2011, and a stabilization levy of 5%. However, over the ensuing period he has been refusing to negotiate with the FCO, he has been ranting about independence, quarrelling with the Governor, "cussing out" developers and blaming the AUF for our financial and economic predicament. As a result over those nine months the communication tax has gone to 7%; the customs surcharge has gone to 6%; the levy has gone to 6%; and there has been an additional fuel tax of EC$2.00 per gallon.
Let me use a "man on the street analogy" to explain what has happen. If you were delinquent on your house loan at the bank and you were asked to come in and talk with your loan officer and over a period of nine months you refused to sit down and talk with him/her and you came up with a range of reasons including claiming that the loan officer does not like you or that your wife caused you to be delinquent because she is having an affair with the loan officer --- what do you think would happen? The Bank will threaten to take your house! And when you eventually decide to settle down and negotiate the amount of money you actually owe would have increased considerably. Likewise because the Government spent so much time bickering and blaming we now have to pay more in order to make up for the twelve months of lost revenue. That is why we are so hurriedly trying to impose such high taxes.
But there is also another side to that story. Had we gone to the bank earlier to negotiate we could also have been able to ask for more time to pay down the loan and consequently incur smaller payments. In my article of December 31, 2010: "We'll take a cup of kindness yet"I wrote: "The Chief Minister must settle down and explain the differences in the Anguilla situation and outline to the British Government the negative impacts of its recommendation on a small and extremely vulnerable state like Anguilla. But most importantly he must also be able to present a sound proposal as to how he intends to retire the deficit and restore fiscal and economic stability over the next three years. Such a proposal may even suggest that five rather than three years would be more feasible for returning to a balanced budget position." The point I am making is that in an atmosphere of mutual respect and cooperation the British Government could have been persuaded to agree to five years or more rather than three to reach a balance budget situation. Such an agreement would have allowed for lower taxation levels in the short term and with a much more positive approach to growing the economy through targeted spending and increased private sector investment --- the possibility of an even quicker return to a balanced budget situation.
Returning to my strong view that the Stabilization Levy is inequitable let me explain as promised. It is now written in the Bill that an upper income limit for the tax has been set at EC$7,000. In this sense anyone who makes over that amount pays a lower percentage of his/her income. Put simply if you earn $14,000 you will actually only be paying 1.5% tax on your earnings because half of what you earn is tax-free. You are therefore paying a lesser percentage of your income in taxes than the lower income worker who is earning $3,000 per month --- that individual is paying 3% percent of his meager earnings to the taxman while the you are paying half that rate. While the idea of a cap or upper income limit may have some justification why not then devise some balance where a lower limit is established as well. There are two possible options: 1.) Create a lower limit where persons earning less than say $2,000 per month get an exemption or a reduced rate and increase the upper limit to say $9,000 or $10,000 per month. 2.) Create a graduated levy beginning from 3% to 6% overall rate with perhaps a much lower limit and an even higher upper income limit. This can be done while at the same time ensuring that the desired yield for the levy is achieved. In short while there is a need to generate more revenue we must ensure that we come up with creative adjustments to ensure a measure of fairness and equity.
Among the other issues I mentioned is workers' service charge which this Government and in particular the Parliamentary Secretary and the Elected Member for East End during their poor performance as a negotiators for the Cap Juluca IOU swore to protect. Hopefully, growing pressure from irate hospitality sector workers will force that concession. Already I have heard that "circus master" is on the move with explanations and excuses. The IRS style penalties contained in the Bill are also a cause for concern and particularly so in a "no direct taxation" culture. Compliance laws are important for ensuring fairness in any tax system but they should not lend themselves to creating criminality without due regard for the nature of the environment in which the system is to operate. In this context the self-employed will require special attention.
I must make the point again that what is being proposed here is a far cry from what the AUF was accused of implementing during the election campaign. There are two documents that the present government would be well advised to read. These documents were done with homegrown expertise not imported consultants. The first one was produced by the Ministry of Finance to address the 2000 - 2002 recession on March 14 2002 entitled: "Measures to restore fiscal stability in Anguilla over the period 2002 to 2004" it was a document which made the case with the British Government that the AUF administration had a plan to achieve fiscal stabilization with a strategy that was sensitive to the human consequences of the adjustment process. It not only worked --- it was also responsible for the period of prosperity that we enjoyed from then until 2008. The second document also produced by the Ministry of Finance to address the present global recession on June 5, 2009 is entitled: "Anguilla Fiscal and Economic Recovery Plan 2009 - 2011." The obstacles to the implementation of this plan are well-known --- not the least among which was the 2010 election and the deliberate efforts by the AUM to manipulate the issues to its advantage through lies and innuendo. While opposition groupings may feel vindicated by the present woes of the AUM and its inability to deal with the issues. It is sad that we still must suffer even more from their shameless political posturing.
But in the wider community where some persons genuinely believed that the AUM would make a difference --- bringing the Stabilization Levy in its present form into law on April 1, 2011 would clearly make it as our Party Chairman calls it a "Destabilization Levy". And the choice of the date for implementation being April 1st 2011 could lead many Opposition supporters to break out in that well-known derisive chant, chiding embarrassed AUM supporters: "You born on All Fools Day!"
Victor F. Banks
Sachasses Estate
March 15, 2011
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