In the 2017 bud­get pre­sen­ta­tion, Fi­nance Min­is­ter, Colm Im­bert, in­tro­duced a new tax brack­et of 30 per cent on in­di­vid­u­als whose charge­able in­come ex­ceeds $1 mil­lion per an­num and on com­pa­nies with charge­able prof­its in ex­cess of $1 mil­lion per an­num.

Mr Im­bert framed the in­crease in the tax rate on high-in­come in­di­vid­u­als and cer­tain com­pa­nies to 30 per cent from 25 per cent as part of the ad­min­is­tra­tion’s ef­fort “to en­sure so­cial eq­ui­ty.”

“Madam Speak­er, as we make ad­just­ments, it is im­per­a­tive that we spread the bur­den of ad­just­ment across the so­ci­ety. The bur­den can­not fall on just one group alone. The time is thus op­por­tune to widen and deep­en the tax net with­in Trinidad and To­ba­go...

“Con­sis­tent with the ob­jec­tive of spread­ing the tax bur­den across the so­ci­ety, this mea­sure will be in­tro­duced on Jan­u­ary 1, 2017 and will en­sure that high­er-in­come in­di­vid­u­als and cor­po­ra­tions make an ap­pro­pri­ate con­tri­bu­tion to the fis­cal ad­just­ment ef­fort. This mea­sure is ex­pect­ed to gen­er­ate from high in­come in­di­vid­u­als and busi­ness­es, an ad­di­tion­al $560 mil­lion in tax rev­enue.” And the rev­enue sit­u­a­tion in the first three years of the cur­rent ad­min­is­tra­tion was very tight.

And then in the 2018 bud­get, the Min­is­ter of Fi­nance made two ad­di­tion­al ad­just­ments to the cor­po­rate tax regime.

He said: “Among the fis­cal mea­sures which be­came ap­plic­a­ble in 2017 was the in­tro­duc­tion of a new tax brack­et of 30 per cent on com­pa­nies with charge­able prof­its in ex­cess of $1 mil­lion per an­num.

The base tax rate brack­et for com­pa­nies re­mained at 25 per cent. To spread the bur­den of ad­just­ment, I now pro­pose to in­crease the base tax rate brack­et for com­pa­nies which were pre­vi­ous­ly sub­ject­ed to a tax rate of 25 per cent to 30 per cent, there­by har­mon­is­ing the cor­po­ra­tion tax rate.”

He al­so sig­nalled the in­tro­duc­tion of a new tax brack­et of 35 per cent on charge­able prof­its for com­mer­cial banks “con­sis­tent with the need to spread the bur­den of ad­just­ment across all sec­tors, in­clud­ing wealthy cor­po­ra­tions.”

Both of those mea­sures took ef­fect from Jan­u­ary 1, 2018.

Did tax hike achieve

rev­enue tar­get?

Un­for­tu­nate­ly, in de­liv­er­ing the 2018 bud­get, the Min­is­ter of Fi­nance did not in­clude an analy­sis of the im­pact on rev­enues of the in­creased tax rate on high-in­come and com­pa­nies with charge­able prof­its of more than $1 mil­lion.

In oth­er words, no men­tion was made of how close the Gov­ern­ment came to achiev­ing its tar­get of $560 mil­lion in ad­di­tion­al tax rev­enue from the in­crease in the high-in­come per­son­al and cor­po­rate tax from 25 per cent to 30 per cent, as at Jan­u­ary 1, 2017.

The same is true of the ad­di­tion­al ad­just­ments to the cor­po­rate tax regime an­nounced in the 2018 bud­get pre­sen­ta­tion, in­clud­ing the in­crease in the tax rate on com­mer­cial banks to 35 per cent.

There has been no analy­sis or im­pact as­sess­ment of the tax mea­sures.

How­ev­er, the Re­view of the Econ­o­my 2020 tells an in­ter­est­ing sto­ry about the rev­enue gen­er­at­ed by non-oil com­pa­nies in the pe­ri­od be­tween the 2016 and 2019 fis­cal years.

In the 2016 fis­cal year—which was the year be­fore the tax in­creas­es—tax­es on in­come and prof­its on “oth­er,” that is non-oil com­pa­nies, amount­ed to $7 bil­lion.

In the 2017 fis­cal year—which was the year of the tax in­creas­es—tax­es col­lect­ed from the non-oil com­pa­nies de­clined by 1.15 per cent to $6.91 bil­lion.

But in the 2018 fis­cal year–which would have been the first full year of the cor­po­rate tax ad­just­ment an­nounced in the 2017 bud­get—tax­es on in­come and prof­its col­lect­ed from non-oil com­pa­nies to­taled $8.85 bil­lion, which was $1.93 bil­lion more than was col­lect­ed in the 2017 fis­cal year.

And non-oil com­pa­nies paid $8.69 bil­lion in tax­es on in­come and prof­its in the 2019 fis­cal year, which was $1.77 bil­lion, or 25.6 per cent more than was col­lect­ed in the 2017 fis­cal year.

Does that mean that all of the ad­di­tion­al rev­enue gen­er­at­ed in 2018 and 2019 was as a re­sult of the in­crease in the cor­po­rate tax rate in 2017 and the har­mon­i­sa­tion of the cor­po­rate tax rate and the in­crease in the tax­a­tion of com­mer­cial banks in 2018?

No it does not, be­cause oth­er things hap­pened in the years af­ter the ini­tial an­nounce­ment that may have con­tributed to the high­er tax rev­enue from non-oil com­pa­nies.

But should the Min­istry of Fi­nance have con­duct­ed an analy­sis of the da­ta from the Board of In­land Rev­enue to de­ter­mine ex­act­ly how much ad­di­tion­al rev­enue was gen­er­at­ed from the tax hikes? Most cer­tain­ly.

Should cor­po­rate tax

hikes be re­versed?

On a Guardian Me­dia tele­vi­sion pro­gramme fol­low­ing Mr Im­bert’s mid-year bud­get re­view—which was more a con­tri­bu­tion on the sup­ple­men­ta­tion of the 2023 bud­get ex­pen­di­ture by an ad­di­tion­al $3.85 bil­lion—I made the point that the rate of cor­po­rate tax should be re­duced to 15 per cent as a means of in­cen­tivis­ing the non-en­er­gy, for­eign-ex­change earn­ing sec­tor to rein­vest in the do­mes­tic econ­o­my.

Pro­vid­ing tax, and oth­er in­cen­tives, to the non-en­er­gy, for­eign-ex­change earn­ing sec­tor to rein­vest in T&T is the ON­LY hope that this coun­try has in break­ing the cy­cle of de­pen­dence on the en­er­gy sec­tor as the pri­ma­ry source of in­come and for­eign ex­change.

With­out mean­ing­ful in­cen­tives, as well as a dra­mat­ic im­prove­ment in the ease of do­ing busi­ness–which in­cludes, by the way, se­ri­ous­ly ad­dress­ing the avail­abil­i­ty of for­eign ex­change—the T&T econ­o­my is go­ing to re­main at the whim of the volatile glob­al en­er­gy mar­kets, with pre­dictable con­se­quences for Gov­ern­ment rev­enue and the stan­dard of liv­ing of the pop­u­la­tion.

A re­duc­tion in cor­po­rate tax­es would re­sult in T&T com­pa­nies, both large and small be­ing able to re­tain more of their pre-tax prof­its to in­vest in their com­pa­nies for growth. That growth would re­sult in more em­ploy­ment, more rev­enue and more tax­es down the road.

For pub­licly-list­ed com­pa­nies, a re­duc­tion in the cor­po­rate tax is like­ly to re­sult in in­creas­es in af­ter-tax prof­its and more div­i­dends to be dis­trib­uted to their share­hold­ers.

In ret­ro­spect, the sug­ges­tion of re­duc­ing the cor­po­rate tax rate to 15 per cent from 30 per cent (and 35 per cent for com­mer­cial banks) may have been a bit am­bi­tious, but it is cer­tain­ly a medi­um-term goal that the Gov­ern­ment should se­ri­ous­ly con­sid­er.

Cor­po­rate tax evo­lu­tion

It is al­so im­por­tant to note that when he an­nounced the in­crease in the tax rate for high-in­come in­di­vid­u­als and com­pa­nies in the 2017 bud­get, Mr Im­bert moved away from the flat-tax pol­i­cy that the then Prime Min­is­ter Patrick Man­ning in­tro­duced in the 2006 bud­get. In that bud­get, Mr Man­ning, who was al­so the Min­is­ter of Fi­nance, re­duced both the rates of per­son­al in­come tax and the cor­po­rate tax rate to 25 per cent from 30 per cent.

And both the per­son­al and the cor­po­rate tax rates re­mained at 25 per cent un­til Mr Im­bert in­ter­vened in the 2017 bud­get.

So per­haps as a first step, the Gov­ern­ment can re­duce the cor­po­rate tax rate back to 25 per cent.

Fi­nal­ly, in an im­por­tant 2012 work­ing pa­per, Joseph Cot­ton, a Cen­tral Bank econ­o­mist in their re­search de­part­ment, analysed the bouyan­cy and elas­tic­i­ty of non-oil tax rev­enues in T&T 1990 to 2009, and con­clud­ed: “The main find­ing of the pa­per is the non-oil tax­a­tion sys­tem is rel­a­tive­ly re­spon­sive to changes in non-oil GDP and as such when growth re­curs, rev­enue would in­crease and help to im­prove the fis­cal po­si­tion.

“De­spite this, rev­enue col­lec­tions suf­fered dur­ing the re­view pe­ri­od be­cause of poor or a slack­en­ing in ad­min­is­tra­tion or an in­crease in eva­sion. This may have been re­spon­si­ble for the de­cline in the non-oil tax buoy­an­cy co­ef­fi­cient when com­pared with ear­li­er stud­ies.

“Ad­di­tion­al­ly, ef­forts to in­crease non-oil tax rev­enue in Trinidad and To­ba­go should fo­cus on in­di­rect tax­es. In par­tic­u­lar, the co­ef­fi­cients for prop­er­ty tax, ex­cise du­ties and in­ter­na­tion­al trade tax were low­er than one which is an in­di­ca­tion of weak per­for­mance and a slow­er growth in tax rev­enue than non-oil GDP.”