By Michelle Sutherland
The Government of Belize is making moves to abolish or significantly reduce income tax (PAYE) paid by workers, but local economist says the cut, equivalent to seven percent of total government revenues, is hard to envision.
The Briceño Administration, via their Plan Belize manifesto, had promised that as the economy “roars back,” they would not only increase the minimum wage to $5.00 per hour but would abolish the Pay as You Earn (PAYE) income tax completely in five years, at a rate of five percent each year. Alternatively, they also promised to increase the income tax deductions threshold to $30,000, up from the current $26,000—the level below which no employee pays PAYE.
The matter came up again last week when the Prime Minister and his team met with the Joint Unions Negotiating Team (JUNT). The JUNT, in their press release, reported the following:
“The Unions also argued that there must be Tax Reform along with Pension Reform. The Prime Minister advised that Tax Reform will be looked at separately as the current consideration of the government is to phase out PAYE by the end of the year.”
Prime Minister John Briceño, speaking with The Reporter on Thursday, said, “If we were to abolish PAYE, there would be no need to raise the threshold to $30,000. But, yes, our plan is to either abolish PAYE or raise the threshold to $50,000-$70,000. But we are just starting to look at that. We had to stabilize GOB’s finances first and grow the economy.”
But a move to completely abolish PAYE, which currently contributes about $102 million to the government’s total budget of about $1.4 billion (or 7% of their total revenue), is not something that local economist Dr. Phillip Castillo can see happening.
He told us, “Majority of the Government’s revenues comes from taxes, and income tax is one of the most significant sources of government revenues. Now, the PAYE system is the system whereby, as you earn your salary, you pay taxes at a certain tax bracket. If the government announces the abolishment of the PAYE, I will be amazed because I know that that is a substantial portion of government revenues.”
Castillo says that while he does know of some countries that have moved to abolish their PAYE system, he also knows that some of those countries also, in turn, rely on other means of taxes, such as fuel. He explained that the likely economic thinking driving this idea is that GOB expects to recuperate the lost revenues via other taxes, such as the General Sales Tax (GST), as households are expected to spend their higher disposable income.
“When the economy is stimulated, goods and services are being created and sold. The government will, under these circumstances, get its revenues not from PAYE, but from taxes such as GST, which are taxes on goods and services. …However, I do not see Belize doing that anytime soon.”