A Positive Tax Measure

Apr 03, 2017 Features / Columnists, Peeping Tom

Not all of the tax measure taxes initiated by the APNU+AFC government should be scrapped. There are some positive ones which could however be better implemented.
A two percent withholding tax is now payable for goods and services supplied by individuals and companies receiving more than $500,000 for the supply of services, goods, materials, equipment or personnel in the furtherance of services.
In layman’s terms what this means is that if you hire a contractor to build your house and the value of the service that he is providing exceeds more than $500,000, then you are required to deduct two percent of this amount as a withholding tax, which will be used as tax credit for the contractor.
This is a positive measure which will ensure that all those persons who have been supplying equipment, goods, materials and services do not escape the tax net.
There are hundreds of such persons who pay next to nothing to the taxman yet are filthy rich.
The PPP/C when it got into power had introduced a similar measure, a two percent minimum turnover tax. The 2% minimum turnover tax ensured that commercial traders could not totally avoid paying taxes. They were obligated to pay at least two percent on their gross turnover.
The two percent withholding tax implemented by the APNU+AFC government has the same intention. It is being used to ensure that persons who normally are apt to not pay have to pay something. They cannot escape paying taxes.
If the 2% withholding tax is to be criticized it will be on three grounds – the rate of the tax, its burden and how it is to be collected.
Two percent is chicken feed for contractors. The tax should have been 10%. It makes no sense asking parents to pay 14% VAT on tuition fees when contractors are being given a minimum tax of two percent on the value of the goods and services they supply.
Two percent is not the tax. It is the tax credit which is being held against their names. But we have ingenious contractors, who are going to ensure that they will enjoy a refund from that two percent when they file their returns.
Secondly, this withholding tax is going to be added by contractors to the cost of their goods and services. It will increase the burden on those who are acquiring goods, equipment and services in the economy. It has also caused problems because some persons have already been contracted to provide goods and services before the effect of the tax was known.
How is the GRA going to deal with this situation of persons who would have signed contracts months and years ago for goods and services which are only now to be supplied? The ‘contractees’ did not have to submit the withholding tax then.
The third problem is that it is unfair to ask the ‘contractees’ to submit to this tax. They are in effect providing a tax service to the contractors that they have hired. It is the contractors who should be required to submit the withholding tax.
There is the related issue as to fairness. If some persons comply and others do not, it means that those who do not comply gain an advantage.
The two percent withholding tax, despite these criticisms, is a positive measure. The task of the GRA is to ensure that everyone who has to pay, does pay. It is distortionary if large numbers of persons are allowed to escape.
And there are some smart persons out there who are already thinking that the way to avoid this tax is to engage in contract splitting, a practice which governments are well aware of. Stricter the government, wiser the population!

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A Positive Tax Measure

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