Introduction
There is considerable irony to the fact that, as I pointed out last week, less than six months after the Poverty Reduction Strategy Paper (PRSP 2011-15) had highlighted the ongoing Tax Reform Action Plan (TRAP) in force since 2003 as a “tremendous success,” the incoming minority PPP/C administration, in one of its very first deliberate post-elections economic policy actions in December 2011, has established a Tax Reform Committee! This action puts the claim of “tremendous success” into proper perspective, and perhaps confirms the view held by most thoughtful Guyanese that today’s tax system is indeed, as I claimed last week, “in urgent need of deep-seated reforms.” This ironic situation may well be a classic example of an incoming political administration of the same political ilk as the out-going administration, being blindsided by the foolish and foolhardy actions and statements of its predecessor.
In my previous column (January 15), I had challenged the wisdom of establishing a Tax Reform Committee to pursue this objective. My main concern is that this approach frames the task of tax reform in a far too ‘technicist’ way. Experience shows that successful tax reform in circumstances like those in Guyana requires both a political and a technical (economic) approach to this task. Close study also reveals that worldwide, well-functioning tax systems are founded implicitly or explicitly on the notion of a political-social contract among key stakeholders. To achieve this in Guyana, I had respectfully recommended, as a minimum, the establishment of a National Commission on Tax Reform. This body should be empowered with all the deliberative, consultative, and legal authority normally found in such august bodies.
In support of this proposition, I started to describe last week what I believe is the mindset of the key stakeholders to Guyana’s tax system. So far I have briefly outlined the situation of three of these: individual tax payers; the law making authorities; and, the public at large. This week I shall conclude the descriptions of the remaining stakeholders.
Tax administration authorities
The tax administration authorities as a group of stakeholders also follow the basic patterns outlined last week. Tales abound about how friends, contacts, and the criminally inclined are ‘facilitated’ by the tax administration. Tellingly, perceived associates and members of the ruling political elites are also ‘facilitated’ by these authorities. While these observations by themselves would represent a system gone horribly wrong, we find that, in addition, many taxpayers look on the tax administration authorities as not only rewarding those who are politically favoured, but also using the system to punish those politically out of favour.
Regrettably, once the tax system acquires the reputation of being misused and abused for political ends, it becomes exceedingly difficult to recover the authenticity of the system. To recover authenticity requires a social and political process founded on redress and reconciliation, as the essential way towards embedding transparency, fairness, efficiency and other desired attributes into the system. Such a process underscores my call for a National Commission on Tax Reform as opposed to a Tax Reform Committee.
Business taxpayers
As a rule corporate and other business taxpayers not only support but indeed thrive on the dysfunctionalities of the tax system. Like their individual taxpaying counterparts, tax avoidance and tax evasion are flagrantly practised as the norm. This group, however, is much better equipped than individuals to pursue their illicit activities. Businesses are generally better able to employ skilled personnel to aid them in these endeavours. Financial, legal, accounting and tax advisory enterprises routinely collude with businesses to defraud the tax revenue authorities. This is so well-known by the average Guyanese that I cannot imagine the tax administration authorities are unaware of its pervasive effects on the non-payment of taxes.
In later columns I shall discuss the economic issues centering on the measurement of what economists term the tax-gap, which this generates. For now readers should be aware that in their routine activities they would have certainly come across several instances of businesses practising tax evasion. Good examples are 1) when they are given the option of paying VAT or not; 2) when they observe under-reporting by local producers of their output of goods and services; 3) when they observe the undervaluation of imports; 4) when they observe the widespread availability for sale (or public display) in business establishments of ‘smuggled’ items like cigarettes, alcohol, and beverages; 5) when they observe the falsification of labelling details on products for sale; and 6) when they encounter goods and services which are illegally obtained, being re-sold.
Added to this, powerful businesses have a reputation of bullying the tax authorities. Occasionally incidents are reported in the media, as when Stabroek News (Sep 28, 2011) reported on conflicts between a Shivraj firm and the National Insurance Scheme tax inspectorate. Perhaps local and overseas firms operating in the minerals sector (gold, diamond, manganese, copper and petroleum) have the worst reputation for tax avoidance. The desperate efforts by government to sustain the scramble for the country’s mineral resources seem to be interpreted by these businesses as a licence for non-payment of taxes. Finally, another glaring example has been recently revealed in the FBI sting operation to entrap operatives in the Guyana Gold Corporation, as revealed in the Canadian press (Vancouver Sun).
Corporatist bodies
Various corporatist bodies also constitute a key group of stakeholders in the tax system. As would be expected, these include established workers (trade unions) and farmers’ organisations, as well as consumer groups, NGOs, and professional/technical organisations. General-ly, these stakeholders have a very strong interest in the promotion of tax reform, as they are acutely aware of the deep-seated defect.
Next week I shall continue this discussion and begin by directing attention to where the taxes come from.
