The system has not been fixed

May 19, 2018 Features / Columnists, Peeping Tom

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The APNU+AFC came into office armed to the teeth with criticisms of the manner in which the PPPC government had administered fiscal concessions. Some of the justifiable criticisms made of the PPPC were that there was favouritism in the granting of fiscal concessions.
You would have expected that in this scenario that the APNU+AFC would have taken steps to revamp the system under which fiscal concessions are granted. It has not done so – one of the many failings, which point to slothfulness in economic policy-making.
The Minister of Finance himself recognized the problems associated with fiscal concessions. In January 2016, this newspaper quoted the Minister of Finance as saying that the GRA must tighten up on the monitoring of concessions.
The Minister missed the source of the problem. It is not so much the abuse of concessions that was a problem but more so the system used for persons being approved for concessions.
The Minister in that article was quoted as saying that he found a tax system that was characterized by high rates and as a result, there was “innumerable requests for tax exemptions and concessions, which totaled $55 billion in 2014.”
As Kaieteur News is now exposing, fiscal concessions offered to some companies in the gold mining sector are multiple times that which was being complained about in 2014. The value of the concessions, as reported in this newspapering is astonishingly high. Waived taxes on fuel and capital equipment account for the bulk of the concessions.
The multiple applications for concessions are not because of high rates but because of high rates of approval. Capital equipment attracts low rates of duties but it is the readiness of the government to grant such concessions which leads to the innumerable applications.
These concessions constitute a form of tax avoidance. When a company signs a fiscal incentive agreement with the government, it avoids having to pay taxes and as we are now seeing, that avoidance can be to the tune of billions of dollars for individual companies. The APNU +AFC seem to have forgotten its criticisms of tax avoidance under the PPPC.
The Minister of Finance, in January 2016, admitted that the system was broken and it needed to be fixed in a comprehensive manner, one, which he said must result in a system that is more transparent and predictable and one that rewards effort, promotes investment, improve competitiveness and removes distortions between and across sectors.
The system clearly has not been fixed and more importantly the Minister’s own observation about there being distortions across sectors has not been remedied.
Strengthening the GRA”s organizational and managerial capacity, one of the measures proposed then, is clearly not the answer. That is mere passing the buck. The problem lies in policy-making and it does not require a genius to know where from where the initiative for policy-making should emanate.
‘Tariffication’ is a method that the World Trade Organization has long been encouraging, particularly to increase market access for agricultural produce. ‘Tariffication’ involves converting non-traffic restrictions, such as quotas, into tariffs.
The government should use a similar approach. Instead of being inundated with innumerable requests for fiscal concessions, the government should make all concessions subject to tariffs.
This would achieve a number of things. It would make the tax system more predictable. Investors would know the concessions for which they are eligible. Companies would no longer have to be approaching government officials to help them gain tax concessions.
Capital equipment, regardless of the size of the industry, can be given a zero tariff, which means that all capital equipment is free. Or is that is enjoy a nominal tariff, say 1%. The revenue intake of this latter measure would be extremely high and cannot be said to unduly increase the cost of investment.
Such an approach would limit corruption in the system and also limit the amount of resources which the GRA would have to devote to administering a system.
Such a system would also help iron out the distortions across sectors. The zero tax on capital equipment, for example, would apply to all the productive sectors or if the government. If, on the other hand, the government wishes to direct or redirect investment to a particular sector it can adjust the tariffs on capital equipment for that particular sector.
With such a system, you do not need a GOINVEST. No one needs to apply for any concession. It is all governed by tariffs.
Taxes such as corporation tax, royalties and withholding tax concessions can be patented to take account of the size of the investment and the employment it generates. But on the import side, there is little harm to be had from simply either zero rating all capital equipment or charging a nominal tax.
That is the type of thinking which has been lacking from the APNU+AFC and it is this reason why there is no much disaffection towards the government and so much disinterest by investors.

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