Home / View Point / Akins Vidale / Budget analysis: Online tax fiasco, ageing population, diversification dilemma and more

Budget analysis: Online tax fiasco, ageing population, diversification dilemma and more

Two Tuesdays ago at a meeting in Mt D’or, Minister of Finance Colm Imbert boasted that there were only two people who knew the contents of the budget, the Prime Minister and himself.

The subsequent applause for this revelation is symptomatic of the nature of our state. We are accepting of the budget being held in a back pocket like an elusive election date.

Photo: Finance Minister Colm Imbert. (Copyright WEFM)
Photo: Finance Minister Colm Imbert.
(Copyright WEFM)

The time spent speculating could be better spent in dialogue, which would make the Parliamentary process a formality yet, at the same time, ensure a Budget that should better reflect the kind of participatory process that a nation celebrating 40 years as a republic should be striving toward.

Before I begin my own comments, let me make it clear that I am not an economist. But then again neither is the Minister of Finance.

The Minister indicated that “In these difficult times, it cannot be business as usual”. I am inclined to agree with his conclusion but not with the strategy adopted to address the situation.

The Minister presented the result of a bookkeeping exercise focused on ensuring that the expenditure was more aligned with current revenue. The focus was to stabilise the economy. This was not “a blueprint for transformation and growth”.

I want to argue that, notwithstanding the mismanagement of the economy by the previous administration, it is to our own detriment to ignore those issues, which lie in the very nature of our economy. Stabilisation without transformation will only prolong the inevitable.

The fact of the matter is that we have an economy in which we sell oil and gas to generate foreign exchange to buy everything else.

Photo: The price of crude oil continues to plummet...
Photo: The price of crude oil remains low.

The drop in oil prices has reduced our overall revenue and ability to meet domestic and international expenditure. The tag line used to address this issue has been “diversification of the economy”. But this is nearly impossible with reduced revenue to pump into alternative areas and, as has been the norm over the years, will probably amount to no more than lip service.

On this issue, the Minister outlined the challenges to diversification rather than pointing to any real program to set us on that path. The real challenge of reduced forex earnings is, first, consumption. There is a definitive need to have measures which would slow down the rate for consumption.

Imbert stated that: “with effect  from  October  20,  2016,  [there will be] a 7  percent  charge  on  purchases  that  arrive  in  Trinidad  and  Tobago  through the courier companies or are brought in directly by  individuals  via  air  freight.” This is expected to yield 70 Million in additional revenue.

This revenue will probably have to be collected the same way that VAT is currently collected and we know now that the expectant increase in VAT revenue was not collected.

The same BIR which has all these challenges is now expected to oversee the collection of this new tax in addition to several other new taxes announced in the budget.

Photo: An online shopper prepares to make a purchase.
Photo: An online shopper prepares to make a purchase.

The Minister was clearly cognisant of this predicament as he intimated that the passage of the Revenue Authority would solve this but it needed the support of the Opposition. So, if it fails, we know why.

That aside however, this assumes an import bill of 1 Billion TTD or 150 Million USD. In December of 2014, then Central Bank Governor, Jwala Rambarran, said that our retail and distribution sector is the “most voracious consumer of foreign exchange”.

In fact, Rambarran suggested the sector consumed on average 1.5 Billion USD per year or 100 times the consumption of online purchasers. To put it in ever clearer context, the report identified PriceSmart as consuming almost 170 Million USD per annum.

What this means is that one company consumed more USD than the entire online shopping population.

So the question is, what measures have been put in place to directly impact the demand for forex by this retail and distribution sector? Because, with the current measure, it is easy to speculate that the real intent is to push online shoppers back to the stores.

Let us be clear, the real issue is access to forex. It is also noteworthy that the tax applies only to air freight and not sea freight where the majority of imports enter the country, some of which are online purchases.

Photo: The PriceSmart retail store.
Photo: The PriceSmart retail store.

There has to be a question as well about the failure to tax food importers to help reduce the demand on forex and, at the same time, create an environment for local produce.

Before I address the core issue of the energy sector, I just want to say a few words on some of the more prominent measures. It is laudable to introduce a progressive tax. That is a tax system where those who earn more pay more. This is what currently happens with NIS payments.

The issue now is one of avoidance and that will be a major bugbear in the realisation of the expected revenue as outlined by the Minister.

I have said my piece on GATE before and my position has not changed. It is a regressive step and one devoid of any supporting data to discriminate against persons over 50.

In an ageing population, you are going to need persons to work longer as is already happening. The current working population will not make enough contributions to support pension funds and pension payments will not meet the cost of living.

There is a real ongoing conversation about increasing the retirement age and many companies are already rehiring retirees on contract. Denying older workers equal access to educational opportunities means robbing them of a chance to remain competitive. Furthermore a later retirement age means less stress on pension plans.

Photo: An empty classroom. (Courtesy alamosbasement)
Photo: An empty classroom.
(Courtesy alamosbasement)

The fact that there was also an attempt to engage in capital expenditure is important. However the avenues for this expenditure are critical. A highway was not in and of itself a developmental project under the last regime and multiple highways will not be either.

Conversely it is an insult to suggest that a competition—like “Shark Tank”—is a progressive mechanism to approach the question of innovation. More so investing TT$5 Million will not yield any benefits.

How do we know this? The last Government’s proposal was TT$10 Million and it was a disaster. Where are the innovators who benefited from that expenditure?

There would also be serious questions about how much of the TT$1 Million ‘prize money’ would actually go to the innovator rather than to Government technocrats who manage the startup of the idea.

So onto the oil price. It is unprecedented for the Budget to be pegged to a range. It is my view that US$48-$50 is also high and it should have been closer to US$45. No doubt this higher range is deliberately set to serve a political purpose. This way, it understates the projected deficit, which is estimated at 6 Billion.

We have heard time and time again that we are trying to avoid the IMF, yet several decisions are predicated on IMF directives. The removal of another 15% on the diesel subsidy places the most vulnerable in the society at the mercy of an unregulated environment. It should be obvious that any increases in transport fees will result in overall increases in commodity prices.

Photo: A customer reacts to high prices. (Courtesy FinanceTwitter)
Photo: A customer reacts to high prices.
(Courtesy FinanceTwitter)

Dangerous opportunity looms for us. As stated in the Budget presentation: “Changes in  the  fiscal  regime  for  the  energy  sector—which  came  into  effect  in  2014 and  allowed  for  the  write  off  of  100  percent  of  capital  expenditure  on  exploration  in  the  first  year,  among  other  concessions—and declining predictions, the revenues from petroleum dropped  to  just  $1.7  billion.  This represents a decrease between   2014   and   2016   in   annual   revenues   from   petroleum of $17.6 billion or 92 percent.”

It is dangerous for us to stay on this path. There are three reasons for the overall loss in revenue. The reduction in prices, the reduction in production and, as stated in the paragraph above, the poorly conceived regime implemented by the last Government.

That the previous Government has to bear some responsibility for the current financial situation is not debatable. However had oil prices still been at US$100 a Barrel, we would probably be hearing about the excellent fiscal policy of the PNM over the last year.

Fundamentally our issue remains our dependence on oil and gas and international pricing which we have no control over.

However we do have an opportunity to address transfer pricing and the SPT regime. Both of these were mentioned in the budget to the credit of the Minister.

BPTT has already sent signals as to its intent to the Government. It is left to be seen how the Government negotiates the balance between incentivising investments and capitalising on the potential earning capacity of our patronage.

Photo: The price of crude oil remains low. (Courtesy Newstide247.com)
Photo: The price of crude oil remains low.
(Courtesy Newstide247.com)

Most of our major contracts with multinationals in the oil and gas sector come to an end in the next two to three years. It will require extreme vigilance from citizens to monitor these negotiations. And it would be naive to think that BPTT would seek anything other than its own interest.

There are many other issues which can be addressed and which I will address in the coming week, such as the privatisation of the people’s assets and rationalisation of Special Purpose Companies and State Owned Enterprises.

There is work to be done. The economic challenges are real but there needs to be a much more creative approach to the crisis and our annual side-stepping of the real problem of our economy, which will catch up to us one way or another.

About Akins Vidale

Akins Vidale
Akins Vidale lectures at the Cipriani College of Labour and Cooperative Studies and is a UWI graduate with a B.A. in History. He has served as the president of the Trinidad Youth Council and is the General Secretary of the Federation of Independent Trade Unions and NGOs (FITUN). Read his blog: http://akinsvidale.wordpress.com/

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48 comments

  1. When the pnm government done it would only have the very rich, poor and the destitute no more middle class.

  2. I come to the realization…no government we elect know what they are doing. Our little island blessed as a tourism destination…and having oil as an asset… 1. Still failing to diversify 2. Cant work as an efficient unit. 3. Wasting our resources. We need new Governance.

  3. Rowley to TT citizens: Wean yourself off the Goverment. – 7% online tax is to satisfy the big business !!!!!!! PNM Govt. knows all you trinis are suckers….they can do what they want….and all you stay silent…
    PNM Govt. boasting about Transforming TT economy…but strangling Small Businesses…who are trying to create jobs…go figure….a set of DUNCE…

  4. With every budget comes new revenue generating measures to sustain the government’s expenditures .. my book sense tells me that I can’t spend what I don’t have only if I choose to be in debt forever .. so why didn’t they not suspend unwanted projects that is costing $Ms that the country cannot afford .. normal thinking would be to prioritise what is needed rather than what is wanted .. I’m not a financial expert but what I see is blantant mismanagement of the country’s funds

  5. An interesting article. The author stressed on some very important points.

    However, there are a couple of things which need to be considered:

    1: the culture of our people is to demand “foreign.” There are decisions made to give contracts to foreign organizations, because if given locally, some national Will be enriched and empowered and be in a position to compete with the political elite. There’s also a matter of taste. When last have any of you eaten a good payme? I’m certain if asked the same about a gyro, you’ll not have to think so far back.

    2. The closing of the Junior Secondary Schools and refocusing of the Senior Secondary Schools, combined with the cannibalizing of John D and Sando Tech has left a void in the technology frameworks. The technologist no longer exist. There are no tinkerers, so how do you expect to have innovators?

    3. The social bias towards medicine, law and finance has stagnated the economy by streaming our “brightest and best” into areas where innovation is unnecessary. Thus we are among the people which have the world record for being the least contributors to IP on the planet.

    4. It will be difficult to diversify the economy without first creating the conditions which stimulate problem solving and innovation. The budget seeks to do just that. We now have to ask ourselves, how can we pay for that Johnny Walker Blue from legitimate means?

    There are others… but I’ll stop there

    • good points… except 1) i believe marketers “push” foreign goods on us, not that we intrinsically want or need foreign items.

    • I beg to differ. If we don’t buy it, the marketeers would sell only what we demand.

      Imagine there are citizens who believe that Apple’s have more vitamin and mineral content than mangoes.

      How can that level of ignorance be blamed on marketeers?

    • easily. the same way people think a guiness is “good for you”, or johhny walker black is a better brand of scotch .

    • U r reaching far sir.

      I’ve never seen an advertisement in the Tele about apples.

      It’s the failing of the Education System and the Ministry of Health which has the stereotype which I have alluded to in existence.

      Your examples are based on the intrinsic need of people to associate with wealth or status.

      However, it’s still not the marketeers fault, but rather the individual who chooses to be influenced by such, because in our culture it is acceptable and encourage so to do

    • the marketing of guiness as “good for you” was an example of marketing supposed health benefits of the product. how is that to do with wealth or status. The whole advertising industry , all 100 years of it, is designed to sell items to people do not need those items. They have mapped human behaviour, they have huge budgets and use it to research how different campaigns affect customer’s perception of thier products. i do not agree that individuals “choose” to be influenced, because the vast majority are not aware of the mechanisms of the industry and how they are affected.

    • So, if the vast majority were students at some time In their lives, and they are ignorant as to the tools which marketeers do to get their money out of their pockets, whose choi e is that?

    • your vast majority comes with a figure? percentage of the population? My assumption is 15% went UWi/university an 3% did a marketing/advertising course. So 85% of the population have no idea of the inner workings of advertising.

    • You’re funny.

      Decisions are made based on information. Had the education and health sectors provided the necessary information, we’d not be engaged in this at this time.

      Nevertheless as individuals, we are responsible for ourselves and those around us, so again choice.

      It’s time we adjust our external locus of control and stop giving others the power to control us

    • So Guinness really not good for you? Damn! I love the drink

    • RuelI want to agree with you yes. I dont think you have to do a mktg degree to recognise when someone’s selling BS. There’s a subtle difference between want and need and people need to know and admit it

    • Savitri it’s just how we r. We prefer to blame others for our own failings.

    • Ruel Ellis the general trust of your comment is interest but laden with assumptions.

    • Assumptions such as what Keston?

  6. Akins, I’ll address one skirmish in your piece regarding the innovation competition which I had initiated in 2012. I take no responsibility for anything done after August 2012. Asking where are the innovators is not really the right question? In hindsight, there are a number of flaws in the design of the programme and other systemic problems – one year of financing for ‘innovations’ to emerge is ludicrous because many world leading companies took about two decades and more to accumulate the experience and capabilities to ‘learn’ to innovate. Not saying that government should fund their learning investments but it should definitely be more strategic. This leads to the systemic problem of financing and market competition. These ‘innovators’ were also left to the wind in an environment with fierce competition making most of them impossible to reach very far unless they started exporting from early, which in many cases were not possible. The oversight and performance requirements which were installed after I left was also lax (I warned about this prior) which is in line with the free-market thinking. Because we have a deregulated, oligopolistic financial sector there is no ways of many of these businesses to seek additional financing and so this is where an institution like first citizens should step in – that bank should be operating on a different set of rules than commercial banks with a developmental approach as happened in other more successful capitalist economies. Whilst I agree that this Shark Tank nonsense is a gimmick there are important things to consider. Shark Tank is made for a different environment, where entrepreneurs have myriad opportunities, with a host of supportive institutions (e.g. that prevent them failing or insure them when they do) and various sources of investment.

  7. When Amazon and I sort out Christmas gifts by the second week of October.

  8. A 16 billion dollar budget deficit is cause for concern. When will we have a surplus budget? If it is correct that 1/3 of government expenditure goes to corruption then we see where the cut in expediture will close the gap to align with revenue. Other spending have to be cut such as over 60 million allocated in the Office of the Prime Minister for donations. What is the purpose of this? Local government election time? Is it not due by October 21 and the Minister said it will not be postponed?

  9. Stop listening to all the big economist and listen to The president of the Sheep and Goat farmers Union. You might learn something. Good morning Mr. Khan.

  10. Did anyone really expect them to come up with any meaningful imnovative solutions? Oh for chrissakes, the best they can do is regurgitate hackneyed, worn out 1980s remedies that barely scratch the surface, I guess that makes more sense than focusing on firm direct initiatives such as plugging the loopholes in taxation for both businesses and individuals in order to gain more revenue….

  11. The fx consumption from pricesmart is a direct reflection of domestic appetite for the goods pricesmart offers that it has to pay for in USD in settlement of bills.

    • Kriss, that doesn’t explain it. I have heard that the truth is different. And that PriceSmart in Trinidad orders goods for all its Caribbean outlets since USD is easy to acquire here. They then ship goods to its other branches.
      In other words, they might using our USD and not even giving us the benefit of it.

    • But then based on that theory Kriss online shopping may actually reduce the fx consumption?

    • Steve Khanpradie I doubt. The items ppl buy at price mart are not necessarily what ppl buy online. While there are overlaps in general I see an expanded basket when you combine the two. My firm view is the supernormal markups via local retailers is the top reason for the spike in online sales. The retailers in turn blame the supernormal rents charged by landlords. The online levy is superficial in that it does not address root causes. I wrote this piece on the budget late Friday evening where I touched on these issues .

      Have a read at your leisure

      https://www.facebook.com/permalink.php?story_fbid=328472284159597&id=189955848011242

    • Why not publish the top 20 fx consumers? Maybe, we should enact Caricom level reporting via a via for fx consumption by multi-regionals like Pricesmart and Unicomer/Courts, Massy, etc?? Fundamental changes are required, whether we like them or not..

  12. Disappointing to read still another article long on criticism but short on solutions. The solutions enumerated and proposed by the government here are indeed inadequate but we all know what the problem is. We don’t need to be told yet another time.

    Perhaps the idea of venture capital needs to be expanded. Perhaps investments in renewable energy and non mineral exports can be targeted. But we don’t need more fault finding. We need solutions. This is getting old.

    • I didn’t see it that way to be honest. Sometimes finding flaws–constructive criticism–is the first step in determining what needs fixing.
      I can’t see author as being repetitive when they do things like urge the government to protect and encourage local food industry or point out why the online tax is not the answer to our forex issues.

    • I think these flaws have been covered exhaustively and repeatedly. We have already determined what needs fixing. We have been having that conversation for quite a long time already.

      Every time I say that this has already been well established and is repetitive people say the same thing. I’m going to have to start saving these articles (which probably come out once every few weeks) as citations.

      Anyway, I’d like to see people with public media profiles do more than just criticism and start proposing solutions. I am starting to think that is the chronic disease of the Trinidadian soul. Criticizing to look smart, while offering no solutions.

    • I didn’t think there were no solutions though. That’s the beauty of it. Even if it might be a simplification, I thought the answers were largely self-evident.
      But I wouldn’t assume that because something was said before means it sticks and everyone remembers.
      Believe me, I saw after the DoJ move on Jack Warner that an investigative reporter quoted liberally from pieces I did years ago. And she got an award for it.
      Quite clearly, people need a refresher from time to time.

    • You think people need a refresher but believe in “self evident” solutions? Haha.

      I didn’t see anything I would term a solution. Although when I read one of these “criticism” articles my hackles tend to go up. Like I said I’m pretty fed up of it. Maybe I read it too harshly. I’m always tempted to ask the person “Why don’t you stop complaining and do something about it?”

    • Dan, when I said the answers were self evident I meant based on the criticism. If I tell you that you made yourself ill by not getting enough rest. Wouldn’t the answer then be self-evident?
      The author readily admitted that he is not an economist. Maybe some people would appreciate his points more than others based on their own awareness of our economic challenges.

    • He’s not saying that “you that you made yourself ill by not getting enough rest”, to use your metaphor. He’s just saying “you that you made yourself ill”.

      The moment somebody says they aren’t a (insert field of expertise here) I ask “Then why should people listen to you?” I’m not sure I understand your point about their awareness of our economic challenges.

      Anyway, I don’t dispute his points. I just wish there were more than this. Time we had people who could say something more than just finding fault in this country. Which, ironically, is what I’m doing in this conversation.

    • Well, my point is that although you might already know something doesn’t mean others cannot learn from it. So you have to consider that as well. It is not to invalidate his points at all.
      As for leading people to answers through criticism, I think the critique of GATE is one example. Because I think–despite being limited to a few paragraphs–he explained that we have an ageing population and workforce and you have to think carefully before discriminating against a large section of that workforce.
      I felt that even when he did not spell it out, the suggestions for correcting it were there. Even if unspoken. Self-evident almost.
      But that’s my opinion.

    • Fair enough. I disagree I suppose.

    • After all these years and we see the rest of the world moving on, we have to tell the govt about things like renewable energy? Get real, change the laws, make oyr state enterprises competitve. Change starts with each one of us, one step at a time.

  13. Indira sagewan ali said tge oil price was deliberately set that high vecause he probably wants to go to the HnS fund again…and the legislation says oil prices must be 10 % lower than budgeted …I add that to the reason stated in the article

  14. Earl Best

    I listened to most of the budget presentation on the radio and, like KPB’s, my reaction was that it was little more than a cut-and-paste job. So thanks for reminding me that the MoF is NOT an economist. And thanks for doing such a good job of picking holes in what Colm presented.

    Maybe it’;s not such a bad thing to be NOT an economist – but if you are post-budget commentator, not if you are the MoF.

  15. Lemme read this tomorrow nah..doh want to go to bed vex