A WHITE PAPER ON TAXES IS NEEDED

Sep 20, 2015 Features / Columnists, Peeping Tom

The most interesting revelation made recently is not about who has abandoned their job. It is about the loopholes in the tax collection system, or at least the belief by the government that there are loopholes.

This has long been known in Guyana. There is a high degree of informality in Guyana’s economy. The tax net does not cover everyone and there are supposedly high levels of evasion.

But that in itself raises a conundrum. If large numbers of persons remain outside of the tax net even though they are earning income, then it means that those who are within the tax net are shouldering the heavy burden of the large amount of taxes collected. Companies for example will in 2015 pay about $55 billion in income tax, a burden that is unevenly shared because the big companies pay a large portion of this tax. Private individuals are expected to contribute over $19 billion in taxes. Yet the base for the $19 billion is too narrow, with large numbers of income-earning persons believed to be excluded. What this means in reality is that persons who pay are paying too high taxes because of the large numbers who do not pay.

The GRA now has a substantial database to go after those who are outside of the tax net rather than to continue to milk those who already pay. Every citizen, at some time or the other, is required to conduct some form of business with the government. In order to do so a TIN certificate is required. It means that the GRA has a database of everyone who does business with the government. They can match this with the persons who actually pay taxes to find those who are outside of the tax net.

Tax rates are already high in Guyana. Personal income tax beyond the threshold is 30 percent of one’s income. This is way too high for a country in which we constantly hear reports of poor social infrastructure. However, it is not high considering that people receive free education and free health care.

Reducing the burden of the taxes on those who pay should begin by asking those who do not pay, to pay first. In this context, the revelation that there are loopholes at the GRA is encouraging. It means that if those loopholes are plugged, more taxes can be collected and the overall burden on those who pay can be reduced.

One way of reducing the burden is to reduce the overall tax rate. Reducing the tax rate will encourage those outside of the tax net to be compliant. This is why it makes more sense to reduce income taxes which are on income rather than VAT which taxes consumption. No doubt these imbalances in tax collection will be one of the things that the Tax Review recently established will be examining.

Finally, the other major revelation concerns the high cost of collecting the taxes. This is a major problem and has to do with the complexity of the tax system. The tax structure is too complicated. This structure increases the cost of administration. The tax structure needs to be simplified. Things such as concessions and mortgage relief and other allowances need to be taken off the tax books. The system should be simplified so as not to increase the cost of collection. Instead of a threshold, the tax rate should be slashed from 30 percent to 25 percent. In this way everybody will pay and all those calculations are simplified to make collection easier. It should be the same with other taxes.

One of the big drawbacks, however, is that there is no White Paper on Taxes. Indeed this should have been a precondition for any tax review committee. Instead what is likely to happen is that it will be the committee rather than government that will end up determining tax policy rather than trying to make recommendations for the improvement of tax administration based on a White Paper that details government’s intentions.

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A WHITE PAPER ON TAXES IS NEEDED

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