High levels of tax exemptions – over $43b in 2014 – and tax incentives have been strongly criticised by the reform committee empanelled by the APNU+AFC Government and it has recommended major revamping.
In the report seen by Stabroek News, the Tax Reform Committee (TRC) says that tax incentives should be provided for through tax laws which should be based on clear criteria and reduce ministerial discretion to an absolute minimum.
It also said that an annual statement on tax expenditures and revenue foregone should be published. This in itself limits “arbitrary and willy-nilly granting of incentives and related corruption”.
Submitted to Minister of Finance Winston Jordan on January 18, 2016, the report said that periodic reviews of the tax incentive system and its costs and benefits should be undertaken.
The committee further said that an annual audit of the concessions granted to companies/individuals should be performed to ascertain if renewal would be recommended. It also posited that “sunset clauses” should be introduced into any new contracts that contains tax incentives. The TRC also advocated for a system of tax credits rather than tax holidays. This is especially so as annual filing is required and a tax profile is developed on the company for use by the Guyana Revenue Authority in the post-tax holiday period.
The TRC declared that the pivotal weaknesses in the local tax system comprise an excessive amount of exemptions, significant evasion and avoidance, low administrative capacity, a relatively narrow tax base and high effective tax rates in certain sectors.
“There is an inordinate amount of exemptions granted to businesses, companies and individuals. The corporate exemptions (worth over $43 billion in 2014) relate mainly to customs duties, VAT and excise taxes and are very significant when measured as a percentage of Government tax take, GDP or private sector investment”, the report said.
It also flagged tax holidays, miscellaneous waivers and other concessions, lamenting that “This generous situation has arisen both as an attempt to offset the high rate of corporate taxation “doctoring” and as a result of excessive exercise of ministerial discretion, the randomness of which could lead to economic distortion and misallocation of resources”.
The report argued that instinctive exemptions to interest groups have been used to address hardships but also to curry favour with parts of the electorate. It said that in relation to the tax waivers granted to the President, Attorney General, Chancellor, Chief Justice and Auditor General there is no justification.
The TRC report noted that the high incidence of evasion relates to companies and individuals who employ various mechanisms to evade taxes. This is heightened by a very large underground economy and rampant smuggling as a result of thousands of miles of unpatrolled borders.
The report further said that failure to catch more persons in the tax net is partly related to the relatively low capacity of the GRA in terms of skilled employees. It contended that these weaknesses have burdened the country’s economy with a very narrow tax base.
Delving further into the loss for the country from exemptions, the report said that companies/businesses accounted for 78% of the total value of exemptions. It said that the most important revenue loss related to duty exempted and this was partly related to the “extreme openness” of the local economy and the high predisposition to import.
