The Seven Per Cent Solution

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Above: Will a seven per cent tax on online shopping feed the national coffers? Image by Siarhei Tsalko, DepositPhotos.

BitDepth#1037 for April 19, 2016

The plan to introduce a seven per cent tax on online purchases probably won’t make much difference in the long run to anyone invested in the process.

Finance Minister Colm Imbert, buffetted by an almost universally negative response to the proposed tax first expressed suprise at the vociferousness of public opinion on the matter and then began suggesting palliative modifiers to the tax.

He also believes that he will earn an additional TT$300 million annually, creamed off an estimated six billion in foreign exchange (forex) spent online, a not insignificant sum when the entire political conversation is about crime and the economy.

Perceptually, it must have seemed like an easy win for the government. The tax targets people with the wherewithal and savvy to seek alternative sources for their goods who aren’t willing to settle for the range of offerings available on local store shelves.

Why tax?

Taxes fund government projects that address the public good, either through direct stimulation of the economy or by improving infrastructure in a way that improves society and business opportunity.

Tax regimes may seek to address economic inequality, by directing those who earn more to pay a larger share of their incomes into the public kitty.

And then, there are taxes which seek to influence behavioural changes.

We have, of course, been here before.

The Buy Local campaign and the introduction of completely knocked down vehicles and then the partially disassembled vehicles, were supposed to stimulate local enterprise.

It’s clear that there has been no lasting impact on the local economy that can be attributed to these efforts at forcing greater initiative into T&T business, our export mix remains dominated by heavy industry.

Seven per cent isn’t going to change online buying patterns. Those buyers have already been through multiple hoops to shop.

Online buyers have already resigned themselves to paying US sales tax, then paying VAT again on entry into T&T, a value calculated on the cost of goods plus US taxes.

This third tax is only a continuation of that fiscal drubbing and will still fall short of matching the “multiply by ten to twelve” pricing of local stores.

It is also a short-term fix for a long term problem.

Because this will end up being a cut with a garlic smeared blade, most shoppers will accept it with a grimace and may cut back on some items the next time stuff piles up in their virtual shopping cart.

What’s going notably unspoken in these discussions is the monstrous disparity in foreign exchange spending compared with earnings.

The T&T government is about to have a schizophrenic break with this new tax, gearing up to expend considerable energy on figuring out how to apply it fairly and equitably while continuing to do little or nothing to enable more seamless participation by small businesses in the online marketplace.

If the Minister of Finance is so worried about the amount of money that’s being spent in online transactions with the US, he might also be inspired to spare a thought for the many reasons that this country is so completely hamstrung in enabling the acceptance of foreign exchange in online transactions for locally produced goods and services.

I know of at least a dozen local projects by small and medium sized entrepreneurs that are effectively stalled by barriers to accepting forex online.

There are others that have moved ahead using unnecessarily expensive or nonstandard methods. Even strictly local transfers of money using digital systems are needlessly hampered.

The political will to accept the recommendations of knowledgeable local technocrats and to face down the apathy of the T&T banking system in order to enable fluent transfer of forex into the country by small businesses has escaped the last three administrations.

The UNC, PNM and PP governments have failed the smart young people of this country time and time again and hobbled this country’s potential to participate in open global markets for reasons that are difficult to separate from rank stupidity and cowardice.

The economic landscape of T&T, dotted with keen new growth enabled by technology is being deliberately trimmed back in favour of wealthy old growth businesses running meat and mortar systems.

A seven per cent tax won’t bring online shoppers back to local stores in any substantive way, and it does nothing for the young tech-fueled entrepreneurs who can do anything online except earn money.

If Mr Imbert is serious about addressing the forex imbalance while stoking modern diversification initiatives, he should task his financial teams with ending two decades of stubbornly ignorant throttling of business opportunity.

It’s an undiscovered country of unrealised wealth far greater in potential than tithing Amazon shoppers with an unwieldy tax regime, but it’s one from which few T&T entrepreneurs return in triumph.