Fiscal reform, Carrot and Stick

Yesterday the MinFEC in conjunction with the MinPres, presented the first phase of their promised fiscal reform.

The Carrot: The goal, they declared, is a form of simpler, more-just, taxation system, and they worked it out with the Tax Department, Customs, Central Bureau of Statistics, and the Legal Department.

The promised reform will take place in stages, effective Jan 1st, 2019, with 30.000 people completely exempt from income tax, 25.000 people now in a lower income tax bracket, 12.000 people exempt altogether from ground tax, and 16,000 people now in a lower ground tax bracket.

The business community will also enjoy a tax break on dividend, as taxation will plunge from 25% to 10%.

And here comes the Stick: To facilitate the reform, ‘a few changes’ will be made in the tariffs of ground tax, tabaco, and alcohol.

End of GOA’s press release

So, what does a simpler, more-just system mean?

I asked some top banana in the tax advisory field.

Hold your horses, he said, put the champagne back in the cooler. This still has to pass as law in Parliament and we’ll see how they usher it in. They are basically shifting from direct to indirect taxes, which is a good move, but we aren’t sure whether it will work, or not.

Bottomline: The lower income segment of the population will see more cash in hand. They will benefit, but people with a more substantial income will not see any benefits from the reform, on the contrary, as prices go up, they will have to make a decision whether to have eggs or steak for dinner. Food and luxury items will increase scientifically! We’ll have more expenses, with the ground tax increase, and our purchasing power will diminish.

But let’s talk in a few days, let’s see the official law and its implications, after Parliament digests it and spits it out!

 

 

 

 

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December 05, 2018
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