For more than one year the Commonwealth of Dominica has implemented the Value Added Tax, or VAT. During the past year the island of Antigua followed suit and put on their VAT. Interestingly, they are both a whopping 15% of the service or goods purchased! Where is the “value” added? Or do the results equal value subtracted?
How’s it going you ask? Depends on who you ask. Both governments make radical claims of how these taxes have helped their ailing economies. No one seems to mention the resultant economic conditions of the local small business communities, or the hardships created for an already financially strapped populous of mainly poor people. A newspaper in Dominica ran a serial article expounding on how the VAT has improved the economic condition of the country. The report was big on numbers, and specifically referred to the progress the government was making on paying off their significant debt. No where in the article did it mention the effect on Dominicans!
In 2008 we see not only Caribbean nations, but major world players like the United States, referring to politicians, politics, and government in general, as if they represent the condition of the people or are in fact the people. I am simply asking you to notice news references in your locale, and see if they refer to actual conditions of people? Or is the preponderance of references to government or what government leaders say? It is as if the media equates the economic condition of people interchangeably with government. Government may be made up of people, but people are not government!
Now as to the wisdom of the VAT. Unfortunately the Ministers in power in the Caribbean, responsible for implementation of a VAT, were educated mostly in Canada, or Britain. The concept of a VAT with a base of multi-millions of persons, in well grounded economies, with plentiful trade, could make for a pro VAT argument. What those ministers apparently have not studied, is U.S. history, in particular trade history.
The U.S. went through a long period of isolationism, where protectionist trade barriers were the rule. Tariffs on certain commodities were the rule. Importation of goods almost always drew a large import duties. The results were repressive for trade, and mostly negative overall, for the country and its populous. Gradually wisdom prevailed and the idea of making the pie larger proved to be a boom for all, except certain industries who had enjoyed special treatment via tariffs.
Let’s look at a simple example to see why the VAT cannot work in Antigua or Dominica. If there are three people who have $10 each, $30 are in play (wealth). Now one person wants to purchase goods or services from another for the price of $1, they must spend $1 plus the 15 cents VAT. Now they have in play among the three, $29.85. If the government who intervened taking the whopping 15 percent off the top, spends the money it taxed among the three players, the original $30 of wealth is restored. But herein lies the flaw for the VAT in the Caribbean, only a small portion of the 15% tax is spent on the island it was collected on. The rest is used to pay off debt held by foreign bankers, or spent off island by the government itself! The pie simply must get smaller! As the pie gets smaller the players tighten up on spending. This is a repressive, self perpetuating nightmare, tax. The base shrinks automatically over time without some intervention.
Economies of Antigua and Dominica are not in any stretch of the imagination large, or stable enough to take 15% off the top without a profound negative effect! The tax base the government is using is initially of a certain size. As the VAT is syphoned off, the tax base shrinks accordingly. Again, the pie gets smaller!
Many years ago I learned a relevant lesson in Hawaii. When someone referred a tourist to a local business, the business often paid the referent a 10% commission. I thought, how can the business afford to pay out the 10%? I was informed one must make the pie bigger in order to share it. First of all, the business would not have the tourist business without the referral, and secondly the 10% was already built into the price of the goods or service. Hawaiians had learned to make the pie bigger if they were going to share it.
There are many ideas and proved methods of making the pie bigger. It is not rocket science, although the leaders of Antigua and Dominica seem to make it complicated and opt for the easy, quick “fix”, ripping off 15% from every transaction, without an ounce of investment from the government. What business man would not love an opportunity to collect 15% gross with no investment of time or capitol? It has been”the easy way out” for elected officials to follow the instructions of the The World Bank, IMF, AID,or some other banking front, which has zero interest in the welfare of Antiguans or Dominicans. (What have you done for me lately?)
One example of making the pie bigger is to attract money to the island. The money you want to attract is money which gets spent mainly on the island, and thus is in “circulation”. Money circulating creates jobs, more trade, and “compounds” opportunity for taxation, while enhancing the overall economic condition of the island, local business, and ultimately the people. Small sales taxes can be implemented, which translates into taking less percentage tax from more money. The effect is non restrictive in terms of investment and trade and as the base increases so does the overall tax revenue. The pie gets bigger!
A recent study provided eye opening data on the retiring baby boomers coming out of the U.S.. The average retiree had more than $1 million U.S. to spend! Attract just 10 people to your island and what is the effect! I could go on and on about the sensibility of such a program, and how it is an environmentally sound way to build an economy. But that is not my purpose here.
My purpose is to point out the ridiculousness of the VAT, restrictive trade barriers like 70% duties on imported goods, and to show alternatives exist which make far more sense for all in the long run.
What desperate condition will it take before the leaders admit their errors, and opt to institute tax and revenue policy based on wisdom and history, rather than on the “you shoulds” of nations like the U.S., Canada, and the U.K.. I ask you what those countries have done for (to) the condition of the people of the Caribbean, South America, or Central America?
You are not those countries. You are Dominica and Antigua and……….! Make your own way. Haven’t you had enough?
The truth will set you free.
