Ian Narine
"Some of our behavioural patterns nurtured over the past must shift. Unsatisfactory levels of productivity, insensitive customer care, lack of competitiveness, social inequity and a lack of transparency must be left behind.
�2 We must hold ourselves accountable as individuals, as families, as institutions as civil society and as a government.
�2 People must be held accountable for the past recklessness in our financial sector and the harm they have caused to many vulnerable people.
�2 People must take responsibility for their personal investments.
�2 People must comply with regulations and tax laws.
�2 We must exercise fiscal responsibility.
�2 It is time to take responsibility for adhering to the rule of law"
You may be forgiven for thinking that the above quote came from the 2015/16 Budget presented by Minister of Finance, Colm Imbert. In fact, the words quoted above came from then Finance Minister, Winston Dookeran in delivering the 2011/12 national budget.
Two points need to be made. The first is that the more things change, the more they remain the same and, secondly, it is easy to talk the talk but much harder to walk the walk.
The 2015/16 Budget presentation set the right tone at the right time given the state of affairs in T&T. However, the devil is always in the details and the fruits will come from proper implementation. What is before us is simply the first step on a long, hard road.
Shared responsibility
A central theme of the budget was that of shared responsibility across the board. The catalyst for the need for "share responsibility" is the significant fall off in energy revenues. In the end, a good crisis has brought us to a point where we should have been many years ago. Let's hope we make full use of the opportunity.
It was prior to the reading of the 2012 Budget I suggested, in my weekly Business Guardian column, that the theme of that budget should have been "Shared Responsibility and Sacrifice." Instead, we got: "Stimulating Growth, Generating Prosperity."
The then People's Partnership (PP) failed to appreciate that in moving from a recession to sustainable growth you had to engage in a sharing of the responsibility. Otherwise, the overdependence on government to drive the process forward would be compromised if revenues faltered once again.
It was in July 2010, with the PP two months in office, that I wrote on the issue of tax collection.
My point then was that improved tax collection "goes a long way to rebuilding the revenue base and for the majority of citizens who were properly contributing to pay for the goods and services provided by the State this represents a fairly painless exercise. The collection of VAT, the activities of the self employed professionals, small and micro enterprises and of course corporate T&T should be better policed from a tax perspective in order to improve the level of receipts."
I have repeated that call every year for five years, to no avail.
In 2012, the point was emphasised with: "It is inconceivable that a government can say to the working class that there are insufficient resources as it relates to wage negotiations yet not work to close the many tax loopholes and areas of non compliance, especially gaming taxes, that exist in the system. Generally speaking, all salaried workers pay their proper level of taxes and have been doing so for decades. Yet these are the ones who also face the brunt of high levels of inflation and the 'financial repression' that comes from a near zero rate of return on savings."
It seems that, finally, the issue of improved tax collection is now on the front burner. However, I wonder if we are going far enough. It is important for this administration to appreciate that tax receipts are, in effect, pro-cyclical. In an economic slowdown as we are experiencing now, business activity slows and some job losses occur. That in and of itself speaks to a reduction in tax revenues. The best way to compensate for that is to expand the tax base and so the issue here is more than just better collection.
Blowing the whistle
There are many taxable individuals who stand outside the system and they need to be targeted. The proposed Revenue Authority, with closer links to the Customs and Excise Division, only speaks to one part of the puzzle. This approach may tighten the issues around assessing business activity associated with imports but what about the growing services sector in particular the self-employed and professional class that don't pay their fair share. Then, of course, you have the underground economy and even white-collar crime, for which we are paying a hefty amount via the national security apparatus to manage.
Many of the budgetary proposals on offer seems to be the giving with one hand and taking with the other. In some instances, it would have been better if nothing were done. Lowering VAT to 12.5 per cent will simply result in a price rounding that will see no change to the customer. It is estimated to be $1 billion in revenues foregone.
Adjusting the Business Levy and Green Fund rates will generate just under $1 billion but this is essentially a nuisance tax that should be eliminated over time. The net effect of these two measures is nil, so what was the point.
Similarly, it would have been far simpler to peg the fuel subsidy at $45 oil (no immediate impact on prices) and let fuel prices rise as the oil price rises than to implement a one off 15 per cent hike. I always maintain that market forces are the best way to manage supply and demand and to promote efficiency.
In a period of "cutting your cloth to fit" I am wary of the number of proposals for special purpose vehicles that seems to be in the making. We already have more than 90 state enterprises with over 80 that are loss making.
The complaints about the Central Statistical Office are well noted but do we fix what is broken or set up a new statistical body altogether? This new body is supposed to work closely with an Economic Development Board for the purposes of medium-term planning. If, so, what then is the role of a Ministry of Planning? More special purpose entities are being proposed for sport, let us not forget the lessons related to Life Sport.
With the public sector investment programme being cut back, surely there is a case for looking at companies that focus on urban development, rural development, national infrastructure development, etc.
Just as the number of ministries were streamlined, the number and role of the multitude of special purpose vehicles should also be rationalised. Don't waste a good crisis.
At the end of the day, the issue of revenue collection has to be in concert with targeted cuts, but progress on the revenue side is really expanding the tax base.
Another special purpose vehicle, the Revenue Authority, is being positioned as the vehicle to accomplish this. Undoubted some type of reform of the tax authorities is needed, however, by simply fast-tracking the manifesto promise (which is now government policy) of whistleblower legislation, things can be sorted out quite quickly.
True whistleblowing where reports are made to an independent foreign-based entity that specialises in these activities–and so have a professional reputation to protect–gets the ball rolling. Giving them the power to request that various agencies collect preliminary information to verify reports is a key next step.
Linking whistleblowing to the area of tax compliance and then providing the information to the tax authorities completes the loop. In many countries, an incentive of a percentage of the taxes collected (10-25 per cent) is paid to the whistleblower.
There are established practices of this nature around the world. It is a system that is self reinforcing in that rather than take the chance of "the whistle being blown" compliance is often voluntary. People in possession of luxury cars and property with no income on a tax form working for companies that are making losses quickly have to make adjustments. The current laws allow the tax authorities to go back six years so income from 2009 to present comes into play.
If executed properly and efficiently there will be no non-energy deficit. There is likely to be no budget deficit. This is also likely to put a dent into illegal activity including white- collar crime. Look forward to a reduction in national security expenditure if it works.
As I have said repeatedly to the previous administration starting from July 2010, sunlight is the best disinfectant. Whistleblowing, coupled with tax reform, is our easiest path to reducing our budget woes. The question is: do we have the political will?
Time to walk the walk.
Ian Narine can be contacted via email at ian.narine@gmail.com