Business Page today returns to what could probably be regarded as one of
grist to the mill of this column over the years - the issue of taxation. The
last time we dealt with the subject was a review of the Value-Added Tax
(VAT) and the Excise Tax Bills which have now been passed by the National
Assembly still containing most of the objections raised by several
stakeholders, including the Private Sector Commission, to a Select Committee
of the National Assembly. I participated in one of those presentations and
found the partisan approach and line of questioning particularly by the
government members of the committee, unfortunately regrettable and
unproductive. Most astonishingly the Minister of Finance who chaired the
committee announced without hesitation or equivocation that the timeline for
implementation was among the commitments to the ever powerful International
Monetary Fund and the sovereign government had no choice in the matter!
VAT was again in the news last Friday arising from a statement attributed
to the Commissioner General of the Guyana Revenue Authority published by the
Government Information Agency GINA. But I will come back to this shortly.
...the worse they get
Despite the fact that Guyana has one of the highest tax burdens in the
world, the International Monetary Fund (IMF) is either pushing or is blamed
for pushing some of the new and harsh tax measures being imposed on
Guyanese. We readily recall the Fiscal Enactments (Amendment) (No.2) Act 15
of 2003, now the subject of a court case initiated by the professionals
rebelling against the imposition of a tax on their services - borne not by
them but by the consumer of their services. That act, widely regarded as
another imposition of the IMF, includes a number of other drastic measures
which have not received much public scrutiny or attention. This lack of
attention may be due to the fact that the tax compliant members of the
business community were generally unaffected while those - particularly the
self-employed - have gone about their merry way of tax evasion and are,
perversely, unaffected anyway.
Two years after the passing of that act the provision for a minimum tax
on self-employed individuals and professionals has still not been put into
effect - no doubt conscious that this is going to be extremely difficult to
enforce and will drive businesses further out of the mainstream. This
administration started with a Minimum Tax over ten years ago when it was
imposed on companies with the commitment that it would be extended to the
self-employed later. That is still to happen and in fact the provision
having been repealed in respect of non-commercial companies, the tax now
only applies to trading, financial and telecommunications companies.
Penalties, more penalties and interest:
But let us look at the provisions of the act which the public was led to
believe was the relaxation of one of the earlier law's more drastic
impositions - the penalties and interest for late filing. When looked at
more closely the situation is actually significantly worse and it now takes
about twelve months for the penalties and interest on outstanding returns
and taxes to more than double the tax liability.
To illustrate this point we used a scenario of a taxpayer with tax
assessed of $1,000,000 payable on April 30, 2004 but who only filed tax
returns and paid the amount outstanding at the end of August 2005. The
hapless taxpayer is liable to a penalty for late filing - (2% or 5%
depending on whether the return is only filed after being demanded by the
Revenue Authority); penalty (not interest which in the eyes of the IMF and
the Revenue Authority is not a penalty!) for late payment - two per cent of
the unpaid amount for each month or part thereof that the tax remains unpaid
during the first three months after the due date, three per cent per month
or part thereof during the next three months, four per cent per month or
part thereof during the next six months, five per cent per month or part
thereof thereafter. On top of this Act 15 of 2003 the Financial
Administration and Audit Act Cap 73:01 provides for interest on late
payments at the rate of 19.88% per annum for the period May 2004 to June
2004 and 19.54% from July 2004 to August 2005.
Since the act states that the penalty and interest outstanding are part
of the tax assessed, the interest and penalty should be compounded at most
on a quarterly basis. After a mere sixteen months the $1M has become
$2,365,789, with interest and penalties accounting for $1,365,789 - an
effective charge of close to 85% per annum! By comparison the interest and
penalties which applied under the repealed provisions would have been
$636,667 - over $730,000 less!
This is clearly an absurd and intolerable position which would bankrupt
many businesses and a case of killing the goose which is not unusual in IMF
The accountant's magic:
That Parliament and the Revenue Authority did not think through this act
sufficiently - whether it was an IMF imposition or not is hardly relevant -
is evident in that the law implicitly suggests how to get around it. Here is
how the magic of the accountant or one of those GRA-licensed tax consultants
can do it and indeed how they do it. They 'doctor' the financial statements
by blatantly under-disclosing income or over-stating expenditure to show tax
payable as nil, penalty for late payment nil and interest nil. Hey, your tax
is zero and for a small fee you have just saved $2.365M!
The obvious and most common question is whether these penalties and
interest can be forgiven or remitted, and here too the situation appears to
be worse. Prior to Act 15 of 2003, section 108 of the Income Tax Act gave
the commissioner authority on being satisfied that there was good cause, to
remit the whole or any part of a penalty imposed under section (70 )
which deals with delivery of tax returns within the prescribed time or under
section 99 (1) under which the 45%/50% was charged and under which the
graduated 2 per cent, 3 per cent, 4% and 5% per month is now imposed.
The new position is that remission is now only possible in respect of the
monthly charge under the Income Tax Act and in respect of the interest on
late payment charged under the Financial Administration and Audit Act, but
only if good cause is shown.
In an apparent attempt to remove the uncertainty and subjectivity which
prevailed in the application of this discretion, Act 15 of 2003 has gone
further and defines 'good cause' to mean circumstances in respect of a
particular taxpayer when there is doubt as to the collectability that can be
resolved by the waiver of the whole or part of the penalty.
It is uncertain whether this intention has been achieved since the
element of subjectivity still remains. Business Page has lamented the
absence of statements of extra-statutory concessions and other publications
setting out the benchmarks and principles which the Revenue Authority follow
in the application of some of the less clear provisions of the tax laws.
While such a publication could not address all the circumstances which
the Revenue Authority would consider as 'good cause,' it would certainly go
a long way to remove the high element of subjectivity and discretion which
still prevails in the tax system.
Next week Business Page will return to the specific question of the VAT
including the statement by the Commissioner General and the draft
regulations which have been published and very usefully are available on the