There has been no pronouncement on its Terms of Reference, intended reporting date, or mode of operation. Such non-transparency in public affairs is commonplace, but like most Guyanese I expected in the new post-election political environment the Opposition would have sought a public declaration on the aims and modus operandi of the Committee.
Beginning next week I shall deal with the Budget 2012 and return to discussing tax reform, after the Committee reports.
Tax expenditures
To recall, last week I introduced two further goals to the traditional (standard) ones previously introduced, namely, the managerial triad and the fiscal policy (macroeconomic) goals.
The former refers to administrability, sound implementation and, the political will needed to operationalize reform.
The latter focuses on fiscal policy to promote growth, development, and macroeconomic balance (that is, ensuring the tax system has built-in automatic stabilizers in support of government’s spending and revenue flows).
A third goal, I now introduce is the rationalization (if not elimination) of the rampant tax giveaways presently embedded in the tax code. Giveaways (or tax expenditures) have the same economic effect, as if their beneficiaries had paid the taxes due under the tax code (if giveaways were absent), and the government afterwards returned these monies to them. In reviewing the 2011 Budget, I had roughly estimated the value of these tax expenditures (giveaways) to be as large as the tax revenue collected. One year later I stand by that estimate.
High returns to investments
The fourth goal I recommend follows from the rampant fraud and corruption, which Guyanese contend with in the operations of the tax system. Reform recommendations should recognize that this means high returns can be gained from investments in improved compliance and enforcement of the tax code. It is so cost-effective that expending economic resources on tax administration improvement should be a top most priority.
Captive taxpayers in a sea of tax evaders
While tax avoidance is legal, tax evasion is not. The line between the two, however, is blurred. And, an army of experts (accountants, lawyers, tax and financial consultants) are determined to keep it that way. As a result, there are certain groups of taxpayers, who are held “hostage” by the tax authorities. By “hostage” I mean these taxpayers are forced to carry a disproportionate burden of taxes, especially, individual income taxes under the P.A.Y.E. arrangements. These taxpayers work mainly as regular (non-contract) employees in the Central Government, Public Sector enterprises and organisations, as well as large long-established private firms.
A fifth goal therefore, is the broadening of the personal income base to improve collections from self-employed professionals and non-professionals (farmers, trades persons, service personnel) and persons working in businesses where non-payment of taxes has become routine.
Local government taxation
A sixth goal is to address the basic defects in the system of local government taxation. While I admit this cannot be accomplished without the reform of local government in Guyana, I merely wish to draw attention to the structural features of local government taxation, which need to be addressed. These are the determination of 1) a stable tax base 2) a suitable tax rate formula (one that reflects the varying capacities of the local authorities), and, 3) a legal formula for sharing of Central Government revenue (after taking into full account issues of size and scale as these impact on tax collection and compliance, spending and oversight).
Taxation, globalisation and regionalisation
A seventh goal is integrating Guyana’s tax regime into the globalised (and regionalized) tax and financial environment. This environment has certain clear distinguishing features, including: 1) large unstable financial flows (as revealed in the on-going global financial crisis and regional financial shocks, which have severely impacted Guyana’s financial system ― the collapse of the CLICO and Stanford Financial Groups; 2) an exceptional mobility of productive factors and technology; 3) unprecedented deepening of global/regional financial systems; and 4) the rapid reduction in barriers to trade, financial, and factor flows.
These features place a heavy premium on predictability, certainty, flexibility, transparency and economic relevance of provisions in the tax code.
In the case of CARICOM it further means ensuring that Guyana avoids at all costs, a competitive race to the bottom, where Member Countries strive to outbid each other in their tax giveaways. Competition for investment flows should rest heavily on the quality and management of the tax code, not arbitrary and potentially corrupt tax giveaways.
Conclusion
The World Economic Forum in its 2011-2012 global competitiveness survey indicates that enterprises in Guyana identify “tax rates” as the third most important problematic factor impeding business activity out of a total of 15 such factors.
The first two in the list are “crime and theft”, and “corruption”. This result underscores the far-reaching importance of the work entrusted to the Tax Reform Committee.
In conclusion I therefore, urge as a final goal (12 in total) that the Guyanese public treats the Report of the Tax Reform Committee with the seriousness the subject matter it deals with fully deserves. While I shall return to the topic after the Committee reports, Guyanese should not allow tax reform to be reduced to a matter for “tax experts”.
They should be ever vigilant and prepared to reject neoliberal orthodoxy, as this may be presented to them as self-evident tax wisdom! The purveyors of this outlook are wont to rely heavily on recommending practice copied from elsewhere and uncritically applied to Guyana.
As I leave this topic for now readers should note that, after all is said and done, tax reform must address the overall tax system, group of taxes, as well as those individual taxes, which are the most aggravating to the public (VAT).
