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KEEP IT SIMPLE

Feb 03, 2012 Features / Columnists, Peeping Tom

 

 

If the PPP wants to make the income tax laws more tax- friendly, it should avoid establishing tax allowances for dependent children. This will only complicate the tax system further and create bottlenecks to improved tax administration.
It was the PNC government that abolished tax allowances for dependent children and tax credits for mortgage payments. Before it made these changes, persons with dependent children could apply for tax relief, and if you were paying a mortgage on a home, you also claim a tax allowance. There were also a series of other allowances such as tax deduction for charitable donations. The net result of these measures was a system that was thoroughly abused, more so by the rich than by the poor.
When the PNC government was streamlining the tax system, it removed a number of these allowances and deductibles. It also tried to unify the tax rates. The intention was to simplify the tax system so that it would be easier to manage.
A simpler tax system has a number of advantages. It reduces the administrative costs and time and allows for greater effectiveness in collection. It also frees resources for concentrating on widening the tax net. It also reduces the loopholes for tax fraud but does not remove this risk.
The downside is that it may disadvantage those who need tax relief, especially persons with dependent children or first time homeowners who may be in need of a tax allowance.
Our tax system in Guyana is characterized by high rates, high levels of evasion and high levels of avoidance. It is not in either the short or long- term interest of any government to complicate the tax system if it hopes to get a tax handle on these problems.
While there will be pressures on the newly elected government to grant tax relief to those with dependent children and create greater equity in the system, it would be much better if an alternative approach was considered. Instead of giving breaks to dependent children, something that can end up benefiting the rich and the poor, the immediate goal should be to widen the tax net to cover the tens of thousands outside of the tax net. Guyana has a large informal sector. There are thousands of Guyanese who work every day but pay no taxes because they are self-employed and often there is no record in the tax system of these people being employed.
The second major objective should be to reduce overall tax rates. At present, the average income tax rates are way too high and there is a far greater urgency to bring the average rate down and compensating for revenue lost by removing a number of the concessions granted, thereby further simplifying the tax.
One of the historic mistakes of tax administration has been to try to use it as a means of redistributing wealth within the society.
Our tax system is already too complicated and it is confusing to many people. Some of the taxes, such as stamp duty need to be abolished. Other taxes such as property taxes and property gains taxes need to be abolished.
Persons should not be taxed twice on the same income. Thus if you sell something and have to pay taxes on the profits accrued, when the resulting income forms part of your gross property, it should not be taxed again.
These are areas that need looking at. Not that dependent children should not be assisted; they should be but not through the tax system.
Implementing free school lunches and free transportation for children to go to school will provide tremendous assistance to poor parents. Today there are parents who cannot afford to send all their children to school because they cannot afford the cost of transportation plus lunch. Giving them a tax break is not going to help as much as providing direct benefits.

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