The TTWhistleblower continues a series of economic analyses, ‘TT economic future hangs in the balance’ looking specifically at the current economic prospects for Trinidad and Tobago, and the fate of other nations around the world that have already experienced or now face the prospect of bankruptcy.
Since the first part of this series, a great deal of research has been ongoing on the impact of the Property Tax on the population and the future of the economy. In this Part 2 of this series, we look at what the likely impact will be
Bad start to a rough year
In just four months since the start of 2017, Trinidad and Tobago has had a very rough year, with no sign of the ground stabilizing any time soon.
So far for the year, we have:
· Recorded the worst decline in quarterly Government revenue in history;
· Seen unemployment on the rise;
· Lost dozens of small businesses;
· Hosted a huge increase in criminal violence;
· Been hit by a downgrade to “junk” status by Moody’s Investor Services;
· Seen the departure of a major rig fabrication investment by bpTT from La Brea, and
· Witnessed the collapse of the sea-bridge between both islands.
With such a dismal third of the year under our belt, the advent of the Property Tax by the Keith Rowley Administration only leaves the independent minded person to believe that things are set to much worse.
The Property Tax has created an unusual moment of unity in resistance among sectors and stakeholders in the national community, with private citizens, professionals, business leaders and politicians alike bluntly rejecting its introduction at a time of perilous economic decline in an environment of fiscal misfiring and hazy ideas being passed off as economic policies.
What is the Property Tax?
The Property Tax was originally tabled by the Patrick Manning Administration as a manner of reform to the Land and Building Tax legislation, and way of raising revenue following the Global Financial Crisis and the ensuing economic downturn experienced in the local and global economies.
It is meant to represent a percentage of the market rental value of residential, agricultural and industrial properties and was subsequently withheld due to widespread public backlash, and a snap election which saw the Manning Government removed from office.
The Property Tax returned to the front burner with the return of the PNM to office in 2015, led by Manning rival, Keith Rowley.
According to information from the Ministry of Finance, the proposed Property Tax is governed by the The Property Tax Act, 2009 and the Valuation of Land Act Chapter 58:03, amended by Act #17 of 2009. This Act replaces theLand and Building Taxes Act and Part V of the Municipal Corporations Act #21 of 1990.
At a post-Cabinet press-briefing on 23 March 2017, the Finance Minister, Colm Imbert said the Government expected to raise at least half-billion dollars in revenue from the application of the Property Tax from approximately 400,000 households.
The figure is quite a significant increase from estimates by UWI Economist, Dr Roger Hosein, who said, using Central Bank data, revenue generated from property related tax in fiscal 2008 was approximately $92.9 million, and for fiscal 2007, $102.5 million.
With the Property Tax now estimated to rake in as much as $500 million, the big questions are in the sources of collection of the tax, and the formula for calculating the amount of tax each household, business owner, land-owner and farmer will pay.
According to retired politician, trade unionist and Journalist, Raffique Shah, in the 2011 census exercise, the Central Statistical Office stated there were 401,000 residential. Shah estimated that today, there could possibly be as much as 450,000 to which one would add 50,000 commercial and industrial properties, and 100,000 parcels of land either vacant or agricultural.
The Property Tax is staggered as:
· Residential: 3%
· Commercial: 5%
· Industrial with building: 6%
· Industrial without building: 3%
· Agricultural: 1%
It should be noted that unused and vacant lands WILL also attract the Property Tax.
Calculating the Property Tax
Calculating the amount of tax you will have to pay will rely on the designation of your property (residential, commercial/industrial, agricultural) and the likely annual rental value the property is likely to attract.
Deeper assessment will be necessary to gauge whether a residential property is standard, modern or executive, and will also include the quality of the construction and location.
Calculating the tax for residential properties is done by this formula:
Estimated rental value: $6000 per month
Annual rental value: $72,000 ($6000×12)
Voids: Minus 10% = $64,800
Tax of 3% – $64,800 x 3% = $1,944 per annum or $162 per month.
In order to assess the current market property rental values, authorized personnel from the Board of Inland Revenue can enter and inspect properties. Once the Commissioner of Valuations authorizes these officers, they can enter your property whether or not YOU consent.
The Valuation of Land Act 18 of 1969 sets out that: (1) Subject to subsection (2), the Commissioner, or any officer authorised by the Commissioner in writing for that purpose, shall for the purpose of ascertaining the value of any land have power to enter, at all reasonable hours during the daylight, in or upon any land without being liable to any legal proceedings or molestation whatever on account of the entry.”
Even more unnerving for home-owners is that you can face a fine for NOT submitting your property tax valuation form, by authority of Section 6 of the Valuation of Land Act 18 of 1969:
· Every owner of land in Trinidad and Tobago shall make with the Commissioner, a return of the land in the form set out in Schedule II.
· Where the owner of land fails to file a return, the Commissioner shall by Notice inform the owner that he is required to file a return, failing which he may be liable to conviction under this section.
· A Notice under subsection (2) shall be sent by registered post.
· A person who willfully-
o fails to make a return within the prescribed time under subsection (1);
o makes a return which is defective or incomplete or which is to his knowledge false in any material particular, commits an offence and is liable on summary conviction to a fine.”
You have 30 days to challenge your valuation and the deadline for the payment of Property Taxes is 31 March 2018.
Persons worried about affording the Property Tax would want to note that deferrals can be obtained once specific criteria are met, according to Section 23 of the Property Tax Act 2009: “The Board may, upon application of the land owner, authorise the deferral of the payment of the assessed tax on the land on the grounds of the “impoverished condition of the owner and his inability to improve his financial position significantly by reason of age, impaired health or other special circumstances, that undue hardship to that owner would otherwise ensue”.
Compound effect of Property Tax
The Property Tax has in recent times attracted about as much resistance as its first introduction in 2009. It is possible that resistance may be greater now, due to worsening economic conditions, increased unemployment, rising food prices and a general malaise across all sectors in Trinidad and Tobago.
What is causing particular concern for citizens is the compound effect that the Property Tax will have, in addition to having the carry their personal property tax liability.
The compound effect was coined by former Trade, Industry, Investment and Communication Minister, Vasant Bharath who has strongly opposed the tax since its announcement on a numbr of business and public platforms.
Bharath noted the example of purchasing wooden products. He stated that the supplier of lumber will have to pay the Property Tax on his storage and transport facilities which will result in his operating costs going up. The manufacturer to whom lumber is supplied will also have to pay Property Tax and his operating costs will go up due to the tax, as well as increased costs from his supplier.
By the time the finished wooden product reaches the retailer, his operating costs will become inflated by the passing on of supplier and manufacturer costs increases, as well as his own tax liability.
This means that by the time the consumer purchases wooden chairs or tables, the cost will include the increased operating costs of three parts of the supply chain. The consumer will have to bear this cost, as well as his own personal Property Tax liability for his home.
The compound effect entails more complex considerations, such as firms deciding to rationalize operations, decrease staff, cut costs and refocus their businesses to a smaller scale/niche.
Out of the compound effect noted by Bharath could emerge a situation of an inflationary spiral, which refers to a self-sustaining upward trend in general price levels fueled by the reinforcing feedback of a vicious circle. Wage price spiral is a typical example of an inflationary spiral: high cost of living prompts demands for higher wages which push production costs up forcing firms to increases prices, which in turn trigger calls for fresh wage increases … and so on.
The general trend in Trinidad and Tobago in the past two years has been for job cuts by firms seeking to protect operating costs and revenue. The trend has also been that increasing costs of living have not attracted commensurate increases in wages and incomes.
Becoming trapped in such a spiral could result in abrupt and harsh measures to cool down the economy, deflate prices and restore stability to the business sector. Trinidad and Tobago could be looking at a long period of recession, likely resembling the days of structural reform and IMF support in the late 1980s.
So while Imbert has projected revenues of up to $500 million from the advent of the Property Tax, one wonders whether the actual revenue figure will fall far short, as a result of leakages and damaging ripple effects that do not appear to have been considered.
Recall when the Rowley Administration decreased Value Added Tax (VAT) from 15% to 12.5%, thousands of previously zero-rated items were suddenly included in the tax net, driving food price inflation from below 3% to up to 9% in 2016.
Imbert projected that the underhanded move would rake in up to $12 billion in VAT revenue. The measure barely netted $6 billion in revenue.
Already, Government officials have made off-hand comments about revenue short falls amounting to $11 billion, and an increasing debt to GDP ratio that in the recent past surpassed 70%.