| Economist: Property taxes unlikely, VAT better | | Print | |
| Thursday, 04 November 2010 11:09 | |||
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Imposing property taxes in the current real estate depression would “break the market,” but replacing customs duty with a properly designed value added tax would be “beautiful for businesses,” said local economist John Hartley. However, making a new tax system work requires a “solvent, honest government,” Hartley told the Chamber of Commerce on Nov. 1. “No revenue system will work until you fix that problem.” Hartley spoke to business leaders about a study just begun by consultants and the interim government to examine valued added taxes, property taxes and excise taxes. Some believe these new taxes will be heaped onto existing taxes, but Hartley said that is not what is being proposed or likely to happen. “It’s wrong to assume that some maniacs from Britain will come down here and crush us with overtaxation,” he said. “It’s impractical nonsense to suggest that this economy can have a taxation effort of more than about 25 to 30 percent of GDP (gross domestic product),” he said. “The economy is far too dependent on a highly mobile expatriate community who’ll just leave.” Hartley said the consultants — Paulo dos Santos and Jorge Baca — are both reputable economists whose recommendations aren’t likely to include property taxes. The consultants are following a revenue study by economist Alan Roe who said the Turks and Caicos Islands need a more efficient, sustainable government revenue strategy, but that property taxes should not be imposed now. Hartley agreed with Roe’s warning against new property taxes in a depressed real estate market, but he also pointed out that the country doesn’t have enough data on property for the consultants to use in fashioning a property tax. Hartley said the TCI should be using value added tax (VAT), which is used in the U.K., because it is fair. It taxes people as they spend money, meaning wealthy people bear a greater share of the burden. However, he said VAT has to include exemptions for basic items so as not to be a burden on the poor, and for small businesses unable to keep proper records. “It’s simple, it’s efficient and it would … tend to collect significant amounts of money from the tourist industry and tourists in particular, rather than the locals,” Hartley said. Roe’s report says the current system of taxation targets hotels and restaurants, financial services and real estate, which account for 52.3 percent of the GDP. VAT could collect more taxes indirectly from construction, transportation and communication, utilities, wholesale and retail trade, manufacturing and mining, and business services other than real estate.
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