Letters to the Editor

I read with interest a recent article in The Royal Gazette regarding comments by Mr. Delaey Robinson, PLP backbencher, on the topic of income tax.

While I may never have fully agreed with the existing tax structure in Bermuda due its regressive nature, that is, the less you make the greater the percentage you pay, at least I can control what I pay in taxes by simply controlling my spending.

I believe if the PLP or any government for that matter, is going to look at the possibility introducing an income tax regime the first thing that it should do is clearly and unequivocally define who is to be exempt from paying income tax. The mistake of not providing this definition is what caused the Bahamas to lose its stronghold on the captive insurance market in the early 1970s, albeit the tax in this instance was an insurance premium tax. In my opinion all companies with non-Bermuda dollar balance sheets, exempt companies, should be excluded from income tax. Those non-Bermudians who are working in Bermuda under a work permit (non-Bermudian spouses of Bermudians do not require work permits) and who earn salaries in currencies other than Bermuda dollars, should also be excluded as they must file tax returns with their home countries. This will require tax treaties with various countries.

The current tax structure in Bermuda is primarily a consumption-based structure in that the Government raises a large portion of its revenue from import duties. If income tax is going to be considered as the tax structure going forward there are a number of variables that the Government must consider.

First and foremost, it must be recognized that the cost to operate the country will increase significantly due to the necessity to create an office to administer and enforce the income tax legislation. An income tax regime is heavily reliant on persons accurately and honestly reporting all income earned, including salaries, rental income, return on investments, both local and foreign. The tax structure will also have to allow for and manage tax deductions for mortgages, the support of minor children and consideration as to how dual income households differ from single income households, including those where one person in a marriage may not work. In an attempt to keep taxpayers honest in their reporting random annual audits will have to be conducted. Other added costs will include the need for ongoing education of the personnel employed to administer and enforce the legislation, education of tax paying public and so on.

The percentage level of income tax will also have to be very thoroughly considered because if the majority of persons end up paying more in income tax than they currently pay under the consumption-based system there could be anarchy. Another, very important consideration is how import duties will be amended. I hold very strongly to the view that if income tax is going to be levied import duties must be removed or significantly reduced. Otherwise you end up with a situation like Barbados, where along with income tax there are very high levels of import duties plus a value-added tax at the retail level.

The introduction of income tax will also increase the cost of operating a business as well as the cost of a Bermuda vacation.

Every business, local and exempt, small and large, will have to bear the cost of retraining staff to ensure that the proper levels of income tax are deducted from the wages of employees and ensuring that the proper reporting procedures are in place. Unlike the existing payroll tax, percentage of income tax will vary, to some degree, based on earnings.

Under the present tax structure the ability of the government to increase its revenue is based very heavily on the performance of the economy. When the economy is booming imports grow, which in turn leads to a great level of import duties, which increases government revenue. Therefore, one of the greatest dangers, in my opinion, under an income tax regime is that the government of the day is more likely to overspend because it can manipulate the level of taxation to offset this overspending.

Any move toward an income tax structure should be very carefully reviewed and researched. There are a large number of income tax structures around the world and these structures are always being reviewed and amended in an effort to get them right. With every change in government there seems to be some change to the tax structure, one only need look to the United States and Canada for clear examples of this. At least with the existing tax structure in Bermuda a person can control the level of tax spending by controlling his level of consumption.

In conclusion, although I stated earlier that the existing structure is regressive one must consider that even under an income tax structure we will all still pay the same price for the day to day items of necessity.

The most important question to be answered is, ãWill anyone really be any better off under an income tax structure?ä

Guilden M. Gilbert, Jr.

Nassau, Bahamas[[In-content Ad]]