The tax burden

Jun 30, 2018 Features / Columnists, Peeping Tom

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No one can honestly deny that Guyana has considerable tax evasion and tax avoidance. It is the country’s worst kept secret, even though it may be hard for the average man to prove.
However, in as much as tax evasion is pervasive, one has to be circumspect with how one treats with tax numbers. The numbers can be deceiving. They do not always tell the whole story.
For example, it is being reported that fewer than 300 taxpayers, account for 68% of the total tax revenues. The statement which was allegedly made by a tax official needs some clarification since it may only relate to income taxes paid by companies but not necessarily to overall tax revenues.
In 2016, for example, the total income taxes collected was $61.13B of which more than 50% came from companies and less than 30% came from PAYE which consists of thousands of workers. So it is hard to comprehend, if we are dealing with total income tax alone, how less than 300 taxpayers were responsible for 68% of the total taxes.
It may be that less than 300 companies were responsible for 68% of the total corporation income taxes. But such a statement would need to be clarified and qualified. For instance, Guyana is not awash with companies. We have a small number of companies. The major advertising revenues in Guyana can be sourced to about six large companies with significant market share in their respective sectors, including one company which has a decades-long monopoly on foreign overseas telephone calls.
We also have emerged from a socialist tradition, one in which the private sector was miniaturized. Under that system, only a small band of mainly family-owned businesses held dominant market shares in the sectors in which they operated.
In fact, during Guyana’s socialist era, certain family-owned businesses were highly favoured by the State and they used this to amass vast wealth and fortunes. During the socialist era, the large private businesses, which were allowed to exist did not face competition from foreign exports, especially in the brewery, beverage, alcohol, tobacco and telephone business.
The point being made is that we are coming from an experience in which private enterprise was stultified and which a small band of businesses enjoyed monopoly status in some sectors. Even though there has been liberalization, many large companies and firms still dominate private sector activity.
It will therefore take some time for the emerging companies, many of which are small companies, to become dominant in the country’s tax base.
There are thousands of small businesses, which are not contributing much to the country’s tax coffers. But do you know how many of these small businesses are actually making losses? There are persons who are just sitting in their business all day without the sales to cover their overheads. They are absorbing losses and are unable to pay their municipal taxes.
They are just operating their business to maintain their tradition of being in business.
Guyanese will remember the sad sight of a man who lived in posh house in Robb Street, but who owed the banks millions and could not pay. The banks won judgment against him but he refused to vacate the premises.
When the bank officials came to place padlocks on his gates, he try to deter them by hitting on the gates with a length of pipe. He was bankrupt. Yet he lived in a fancy house. Not everyone who lives in a fancy house or has a business is making money.
There are vendors in the market who sit all day without getting a single sale, not one. But they do this because they have nothing else to do. They are hoping, against the odds, that their fortunes will change. They go to work because they are trying to hold on to their assets but they are earning little or no income.
Finally, as was acknowledged, Guyana has high levels of informality. It is estimated that as much as 50% of those who earn, in one way or the other, are not within the tax net. This high level of informality is not a problem, which the tax authorities can address on their own. It requires legislative support and stronger regulation.
Of course, if only 300 taxpayers are averaging 68% of taxes, this is not as bad as it seems from a tax collection perspective. It means that a 10% increases in tax collections from these 300 taxpayers – a small number – will increase the GRA’s tax take by almost seven percent. So from a tax efficiency viewpoint, it would make sense for the taxman to concentrate more on helping these 300 taxpayers so that they can grow their businesses rather than trying to go after 10,000 other taxpayers whose share of the tax cake is below that of the 300.

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