Sweeping tax changes proposed
of August 5 described the sitting of the National Assembly on Monday, August
4 as a “lightning” sitting.
intended or not it was one of the best puns that could have been applied to
at least one of the bills that were tabled that day - the Fiscal Enactments
(Amendment) (No.2) Bill 2003.
That Bill contains some of the most dramatic and perhaps controversial
changes in our tax laws for decades. Business Page has advocated tax reform
to ensure a more equitable and efficient system leading to a better society.
context, it supports the objectives of the Bill, but it is concerned that
the manner in which it has been introduced, some of its more innovative
changes and the fact that forces are likely to mobilize against it, will
affect both its passage and its effect.
among others has always called for national consultations to ensure that the
populace buy into any tax reform rather than see it as an imposition to be
evaded at all costs. Unfortunately those calls have never been heeded which
will pose a challenge to those seeking to win support for the Bill in the
National Assembly and those in the Guyana Revenue Authority who will have to
One fear of this column is that if these proposals go through they are
likely to result in increased not reduced tax evasion given all the other
factors at work in our society.
The decade of the 1980s saw major tax reforms around the world including
here in the Caribbean where Trinidad& Tobago, Barbados and Jamaica
re-engineered their tax systems making way for the expenditure tax known as
It was not
until the late eighties, however, that the Hoyte administration made
significant changes to our tax system including substantial reduction in the
rates of both direct and indirect taxes, the abolition of personal
allowances, the unification of the rates of corporation tax and the
introduction of minimum corporation tax. The PPP/C has tinkered and
reversed, then reintroduced some of these provisions which reinforced
suspicions that the administration was extremely uncertain how to proceed
with this highly complex matter.
As a society
we have been tolerant of tax evasion which is reinforced by our political
culture, and as a result we avoided some of the action which we should have
taken ages ago to combat tax evasion.
We have left it far too late and many of the proposals have an IMF/World
Bank flavor and at best will place enormous strain on the resources of the
It is interesting to speculate whether, left on its own and given the
composition of its parliamentary representation including doctors and
lawyers and other self-employed persons, the government would have
introduced such legislation on its own initiative.
that some of the proposals are likely to prove unmanageable, inappropriate,
counterproductive and not sufficiently thought out. In particular, some of
these proposals are likely to be inflationary at a time when the economy is
struggling, and it is important that we do not exacerbate an already bad
While some of
the proposals are welcome and have the full support of this column, the
debate is likely to be overshadowed by the adverse provisions. We now
summarise the major provisions of the Bill:
amendment to the Financial Administration and Audit Act is designed to make
transparent the existing practice of remissions of tax when required by
international agencies that provide loans and grants for public work
amendment to the same Act which provides for a standard rate of interest to
be charged on late tax payments. The interest charge is imposed at the
prime-lending rate published by the Bank of Guyana plus 500 basis points, so
as to recoup the time value of money lost when a taxpayer is late in paying
tax. This is a welcome development since the existing rates of 45% and 50%
are punitive, as a result of which calls for remissions take up a great deal
of the Revenue’s time. The provision does not seem to apply to the immediate
10% for late payment or indicate any consideration for earlier periods.
3. The Bill
provides for the extension of the service tax now paid only on hotel
accommodation and telephones to other services offered by hotels as well as
the services provided by a range of professionals including accountants,
architects, auditors, dentists, engineers, legal practitioners, medical
practitioners, optometrists, pharmacists, physiotherapists, surveyors and
vets as well as real estate agents.
4. The fee
payable for professional practice certificates for the classes of persons
specified in 3 above is according to the Explanatory Memorandum being
increased by 2400% to $250,000 per annum “to account for the effect of
inflation.” This fee was last increased in 1993 and it is hard to see how
the 2400% was arrived at. As if to cushion the blow the increase is being
phased over a three year period.
5. A new
provision is being introduced by way of regulations made by the Minister for
the application of presumptive methods to determine the income of
self-employed individuals with income of less than $10M. For those persons
whose turnover exceeds $10M. the Bill proposes to apply minimum income tax
of 2% of turnover. Here again we see the government making a U-turn while
the non-commercial corporate entities are left as the only group of
businesses to which there will be no presumptive/minimum tax.
penalties imposed by existing law for failure to file, now in section 70(5),
and by section 99(1) are combined in a revised section 99. Limitations have
been imposed in the discretion in the waiver of penalties under section 108
of the Income Tax Act by specifying circumstances constituting “good cause.”
7. The tax
holiday provision as provided for under section 2 of the Income Tax (In Aid
of Industry) Act is modified to limit the exemption from corporate tax to
new firms that create new employment in the specified depressed regions, and
to firms that conduct new economic activity in the specified fields. The
revisions to existing law are intended to aim the benefits of a tax holiday
more specifically at areas of economic activity the government has
determined as a matter of policy should be encouraged.
taxation is considered an appropriate method of tax administration for
specific groups of taxpayers and income is no longer assessed from
accounting records but from indicators such as the value of a farmer’s land,
gross turnover of the enterprise or signs of individual wealth.
One can see with some justification the accountants, lawyers, doctors,
farmers, gas station operators, etc, being targeted, but since many in the
professional categories practice quite blatantly without the requisite
license, it is difficult to see how imposing other requirements will be more
It certainly seems unjust that those few who now comply will be penalized
along with the dodgers.
What is of grave concern is whether the administration of the tax system is
capable of coping with these proposals which deal largely with hard-to-tax
groups not only in Guyana but universally.
The courts, even at the level of the Chancellor and the Chief Justice, have
shown a lack of sympathy for the tax administrator, with the Chancellor and
Chief Justice both saying that the widespread failure by attorneys to take
up practice certificates is a problem for the Commissioner.
If Guyana is to get serious about tax evasion the courts must be prepared to
impose jail terms for persistent and blatant tax evaders.
In 1994, then Finance Minister Asgar Ally announced the intention to set up
a Tax Court which would have been very instructive and helpful. This needs
to be revisited particularly since the government has now signaled its
agreement with specialized courts.
Kowlessar in his 2003 Budget Speech had committed to a number of measures to
improve tax administration including the introduction of Value Added Tax by
2006. There is some relationship between VAT and the proposed services tax
which one presumes will be reviewed when VAT is introduced but even then it
is difficult to see how this will bring about higher levels of compliance.
Accustomed as Guyanese are to unkept promises, observers may have misjudged
the Minister’s intentions and underestimated the scope of his proposed
action. Let us hope that he does not underestimate the reaction of those
powerful and influential forces including the professionals and rice farmers
who have so far operated outside of the tax laws, and who are therefore
likely to rally to oppose moves to get them to pay taxes.
The Bill comes up for debate in the National Assembly during this week and
the so-far muted response may not persist.
The Bill has far-reaching implications and hopefully it will be subject to
very rigorous review and further consultation.
A tax system without legitimacy cannot succeed, and it is doubtful that some
of the radical proposals will earn that level of support without
considerably more discussion.
Whether or not professional bodies or business groups and other stakeholders
are formally consulted, they should immediately meet as groups to offer
their views, comments and recommendations to bring about the desired
objectives with the least possible negative consequences.
We should not forget the names of Kaldor or Kelshall and that it is we as
Guyanese who need to work out the most appropriate tax system for our
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