As food prices con­tin­ue to sky­rock­et, cou­pled with high in­fla­tion, should T&T adopt sim­i­lar mea­sures as that of Bar­ba­dos which saw the re­cent widen­ing of its VAT-free bas­ket of goods?

T&T-born re­gion­al econ­o­mist Dr Justin Ram who re­sides in Bar­ba­dos rec­om­mends that the T&T Gov­ern­ment in­stead do away with Val­ue Added Tax (VAT) al­to­geth­er and im­ple­ment a sim­ple sales tax to not on­ly al­le­vi­ate the bur­den on cit­i­zens but stim­u­late eco­nom­ic growth.

De­scrib­ing VAT as a “cum­ber­some tax” Ram ex­plained, “Re­place it (VAT) with a gen­er­al, sim­pler sales tax at a low­er rate than what VAT is right now. The bulk of in­come should re­al­ly be com­ing from a sales tax and re­duce the bur­den of in­come tax­es par­tic­u­lar­ly on PAYE (Pay As You Earn) and on cor­po­ra­tion tax be­cause, ul­ti­mate­ly, you need to get in­vest­ment go­ing and give peo­ple the op­por­tu­ni­ty to get good pay­ing jobs.”

Last month Prime Min­is­ter of Bar­ba­dos Mia Mot­t­ley un­veiled an $18 mil­lion pack­age to pro­vide much-need­ed re­lief, ac­knowl­edg­ing the dai­ly con­straints Bar­ba­di­ans face in deal­ing with high prices for ba­sic goods, en­er­gy, and gas.

The Bar­ba­di­an Gov­ern­ment has added 44 more home and food items to the list of things that are ex­empt from pay­ing VAT as a re­sult of the re­lief mea­sures.

Some prod­ucts had cus­toms tar­iffs lift­ed, which al­lowed for price re­duc­tions for con­sumers which will last through Jan­u­ary 31 next year.

The Busi­ness Guardian al­so reached out to Trade Min­is­ter Paula Gopee-Scoon on whether there should be more VAT-free goods on the lo­cal shelves.

She said, “There are thou­sands of VAT-free food items in T&T, and this is in ad­di­tion to an­oth­er 20 ba­sic food items with­in most in­stances no du­ty.

“This Gov­ern­ment has paid enor­mous at­ten­tion to en­sur­ing that ba­sic food items are avail­able through the pro­vi­sion of close to US $1 bil­lion in FX sup­port. There have been no emp­ty shelves.”

But for T&T, Ram said, VAT has wider eco­nom­ic im­pli­ca­tions.

One of which is the Gov­ern­ment con­tin­u­ing to owe mil­lions in re­turns to busi­ness­es and these are of­ten paid late and thus crip­ple op­er­a­tions.

“In ef­fect, the Gov­ern­ment is tak­ing a loan via VAT pay­ments and not re­pay­ing the re­bates un­til much lat­er on, some­times years. That mon­ey is now out of the cor­po­rate hands and they can’t use that for in­vest­ment.

“That’s not a good thing. In­stead, im­ple­ment a small­er sales tax on every­thing, maybe there could be some ex­emp­tions, but that sim­ple sales tax could be about five per cent,” Ram fur­ther ex­plained.

This would, there­fore, would en­able the busi­ness en­vi­ron­ment to be en­hanced as there would now be rev­enue for rein­vest­ment in­to the econ­o­my.

Ram al­so warned that Gov­ern­ment should not be head­ing in the di­rec­tion of short-term tax fix­es giv­en the present in­fla­tion but rather fo­cus on trans­form­ing the econ­o­my; the big­ger pic­ture.

“Let’s face it. The econ­o­my need­ed trans­form­ing even be­fore this high lev­el of in­fla­tion. And what I keep hear­ing is we are go­ing to wait. We are to make short-term fix­es. Short-term fix­es are not what we need.

“We are al­ways go­ing to be vul­ner­a­ble to all these changes in the glob­al mar­ket which, be­fore were com­ing every few years but now seems to be com­ing every six months,” Ram not­ed.

Em­pha­sis­ing that the Gov­ern­ment needs to make the econ­o­my much more re­silient Ram sug­gest­ed one mea­sure must be pri­vate sec­tor in­vest­ment.

“Re­duc­ing cor­po­ra­tion tax, re­duc­ing tax­es on prof­it in­clud­ing div­i­dends, in­clud­ing share­hold­ings is some­thing you re­al­ly need to con­sid­er,” Ram said, adding that for house­holds to sur­vive they can­not do so from Gov­ern­ment hand­outs.

Rather, such sur­vival de­pends on ac­cess to good-pay­ing jobs, he main­tained.

Bar­ba­dos had al­so an­nounced a cut to its VAT from 17.5 per cent to 7.5 per cent for the pow­er charge up to the first 250 kilo­watt hours of res­i­den­tial elec­tric­i­ty bill to pro­vide as­sis­tance for house­hold­ers’ elec­tric­i­ty costs.

“As a re­sult, their cost will de­crease from $204.46 to $187.06 for them. This will cost the Bar­ba­dos gov­ern­ment $1.527 mil­lion each month, or just $10.5 mil­lion in to­tal, for the pe­ri­od from Au­gust 1 to Jan­u­ary 31,” Mot­t­ley had said.

How­ev­er, ac­cord­ing to Ram this is not prac­ti­cal for T&T.

Main­ly be­cause this coun­try al­ready en­joys low elec­tric­i­ty rates.

He said in Bar­ba­dos the cost of elec­tric­i­ty is around US 30 cents per kilo­watt hour while lo­cal­ly it’s around US six cents per kilo­watt hour.

“Elec­tric­i­ty is al­ready heav­i­ly sub­sidised in T&T. There’s no more room to sub­sidise that un­less you say you’re giv­ing away elec­tric­i­ty. And any­thing that re­quires Gov­ern­ment try­ing to con­trol the prices stay away from it.

“Even that pol­i­cy in Bar­ba­dos, I re­al­ly don’t agree with be­cause it even­tu­al­ly comes back to bite the Gov­ern­ment and the econ­o­my,” Ram warned.

Get rid of the TT $, re­form Cen­tral Bank

Re­gard­ing oth­er mea­sures at re­form­ing this coun­try’s econ­o­my, Ram ad­vised do­ing away with the TT dol­lar.

Like oth­er cur­ren­cies in the Caribbean, he said this on­ly serves to drag eco­nom­ic ac­tiv­i­ty.

In­stead, re­place these cur­ren­cies with the US dol­lar, Ram sug­gest­ed.

“Let every­one start un­der­stand­ing you are earn­ing a US dol­lar and this would smooth so many trans­ac­tions even at an in­ter­na­tion­al lev­el.

“The use of na­tion­al cur­ren­cies has many more costs than ben­e­fits be­cause you are still con­strained by hav­ing for­eign cur­ren­cy re­serves to back that lo­cal cur­ren­cy.

“So why not just put that for­eign cur­ren­cy re­serve in­to the hands of or­di­nary peo­ple and in­to the cor­po­ra­tion? Con­vert out the TT dol­lar in­to the re­serves,” Ram ex­plained.

That cur­ren­cy in cir­cu­la­tion, there­fore, will ul­ti­mate­ly be­come the re­serves which al­so means that trad­ing on a glob­al scale be­comes much eas­i­er, he added.

“For me that’s a big top­ic which needs to be con­sid­ered to help these coun­tries move for­ward,” Ram re­it­er­at­ed.

Is get­ting rid of the TT$ easy?

Ac­cord­ing to Ram it’s a process which is not dif­fi­cult.

For in­stance, the prices of goods and ser­vices can be both in TT and US cur­ren­cy which is a first step.

“So you al­ready then say the US cur­ren­cy be­comes legal­ly ac­cept­ed in the coun­try for all trans­ac­tions. It’s a par­al­lel sys­tem hap­pen­ing at the same time.

“And over time, like over a year, tran­si­tion to us­ing on­ly US cur­ren­cy. So you start to slow­ly roll back and get rid of the TT dol­lar while the US dol­lar be­comes the main thing,” Ram said.

Ad­di­tion­al­ly, he said TT dol­lar hold­ing will al­so be re­placed with the US dol­lar, mak­ing it more ben­e­fi­cial.

Ram al­so ref­er­enced a pa­per ti­tled, “The Time Has Come to Per­ma­nent­ly Re­tire All Our Caribbean Cur­ren­cies” by for­mer Gov­er­nor of the Cen­tral Bank of Bar­ba­dos DeLisle Wor­rell.

Ac­cord­ing to Wor­rell, the cur­ren­cies of Caribbean coun­tries have now out­lived their use­ful­ness, and have be­come a li­a­bil­i­ty.

They were de­vised at a time when most pay­ments were made us­ing notes and coins, is­sued in dis­tant met­ro­pol­i­tan cen­tres, Wor­rell out­lined, say­ing scarci­ty of the means of pay­ment was a se­vere hin­drance to com­merce.

“In re­sponse cur­ren­cy boards were set up, to is­sue lo­cal cur­ren­cy as need­ed in the colonies. The sys­tem worked well be­cause the lo­cal cur­ren­cy is­sue was backed by an equiv­a­lent val­ue of Ster­ling, in a glob­al sys­tem of fixed ex­change rates.

“In con­trast, nowa­days pay­ments are made most­ly by elec­tron­ic com­mu­ni­ca­tion, cred­it and deb­it cards, cheques and drafts, with set­tle­ment over dig­i­tized bank ac­counts,” Wor­rell ex­plained.

How­ev­er, he not­ed in to­day’s world an own cur­ren­cy has be­come a li­a­bil­i­ty for small economies, lim­it­ing ac­cess to in­ter­na­tion­al goods and ser­vices, ex­pos­ing res­i­dents to risks of cur­ren­cy de­val­u­a­tion and in­fla­tion, erod­ing the val­ue of do­mes­tic sav­ings, in­creas­ing eco­nom­ic in­equal­i­ties, pro­vid­ing a tool for un­pro­duc­tive gov­ern­ment spend­ing, and di­vert­ing at­ten­tion from the need to in­crease pro­duc­tiv­i­ty and en­hance in­ter­na­tion­al com­pet­i­tive­ness.

Wor­rell said while re­tir­ing lo­cal cur­ren­cy is seen by uni­formed ob­servers as a sur­ren­der of eco­nom­ic sov­er­eign­ty, ex­act­ly the op­po­site is true: ex­clu­sive use of the US dol­lar en­hances the range of choice open to the coun­try and its res­i­dents, in all in­ter­na­tion­al com­merce, be­cause such trans­ac­tions are con­duct­ed in US dol­lars or in cur­ren­cies that are con­vert­ible to US dol­lars.

“In con­trast, with the Bar­ba­dos dol­lars, you can­not buy or sell any­thing in near­by St Lu­cia, much less in the rest of the world.

“In a world where pay­ments and set­tle­ments are digi­tised, with no need for notes and coins, there is no lim­it on the com­mer­cial and fi­nan­cial sov­er­eign­ty of hold­ers of the US dol­lar,” Wor­rell fur­ther ex­plained.

Mon­e­tary re­form al­so in­volves a coun­try’s Cen­tral Bank.

Ac­cord­ing to Ram T&T’s Cen­tral Bank, just like its econ­o­my, is al­so in need of re­form.

“I don’t see what’s the point of the Cen­tral Bank. There’s no point. That’s a re­al in­sti­tu­tion­al bur­den with not much ben­e­fit,” Ram said.

He sug­gest­ed it be re­designed to ad­dress im­por­tant mea­sures like mon­e­tary pol­i­cy.

How­ev­er, Ram not­ed that while T&T’s econ­o­my is “much more” ad­vanced than Bar­ba­dos this coun­try still needs to con­tin­u­ous­ly re­form and im­prove its busi­ness en­vi­ron­ment to make it more en­abling es­pe­cial­ly for en­tre­pre­neurs to bring their ideas to fruition.