Govt should aim to make VAT regime more progressive, says economist
Government should aim to make its value-added tax (VAT) regime more progressive than regressive, according to Chief Economist of Bitt Inc. Marla Dukharan.
While VAT is fundamentally a regressive tax, Dukharan said that removing VAT on items in the consumption basket of those who are in lower income brackets or below the poverty line would help to make the tax more progressive.
Among other financial pledges, the Minnis administration said it would effect a reduction, and in some instances a repeal, of VAT on breadbasket items and implement tax-free economic zones for Over-the-Hill communities.
Dukharan explained that the more exemptions you have, “the more costly and complicated it is to administer the VAT, and the less exemptions, the easier and efficient it is to administer.”
But she noted that while everybody pays VAT, those who are living in poverty should be given certain exemptions.
“You have to think about the fact that there are people who are just above the poverty line, and even living in poverty and having to pay a tax on basic food items, to me, makes no sense. It makes the tax regressive.
“So, what they (the government) should be aiming at is not just broadening the tax base, but trying to make the VAT regime more progressive than regressive.
“You look at the consumption basket at those at the lower income level and you remove the VAT on those items as much as it is possible.
“So, that will help to make it a little less regressive and more progressive. That is what I think they should look at.”
The economist also suggested that the items which are not typical consumption basket items of those in the lower income bracket and below the poverty line should definitely have a tax if they don’t already.