Tax system must be made more efficient

No reading of the lips of the Minister of Finance, Larry Howai, is required: there is to be “a comprehensive review of our tax system,” he said. The review will cover the “entire tax system, including tax policy, enforcement and administration.” And it will cover corporate and personal income tax, the VAT and excise duties as well as property and capital taxes. “It will also examine the net benefits to the government for charging fees for goods and services it provides,” said Howai. With the indications quite clear that the Government has to replace the revenue which accumulated over the years of plenty from the energy industry and has to deal with three years of multi-billion-dollar deficits plus mounting public-sector debt, only one result is possible: increased taxes.

 

One way of looking at the signals from the Finance Minister would be to conclude philosophically that succeeding governments gave tax breaks and subsidised quite a range of goods and services when the prices of oil, gas and petrochemicals were high and steady; and now that that era has passed, it is the time for the collection part of the Finance Minister’s budget to set in. What is certain is the need to make the tax system more efficient and to find those in the system who do not now carry their fair share of the tax requirements. Computerisation has made it far more possible for the system to be efficient and to snag those who remain stubbornly outside of the net. What is not certain is whether or not the Board of Inland Revenue has developed the structures and capacities required to administer the tax system efficiently.

 

That administrative capacity is a prerequisite if Howai’s plan is to become reality. He did not place time frames on his intentions, but transforming and making the overall tax system more efficient will not occur overnight. However, Howai must be aware, as someone who has been in the world of business, that tax systems cannot be made so oppressive that they stifle initiative by investors; or systems made so complex that they create bureaucratic trenches into which business operators fall. Similarly, if personal income tax rates provide a disincentive, especially for those trapped in the pay-as-you-earn system, it will lead to employees cutting corners to find time to earn additional revenue outside of the system. A balance therefore has to be struck between expanding the tax-revenue base to ensure the Government has funds to administer and stimulate the economy, and at the same time avoiding the pitfall of creating disincentives at the corporate and personal levels.

 

Another very important factor in Howai’s tax initiatives is that there must be returns of efficiency and easy accessibility to the goods and services for which the Government is likely to ask the population to pay more. For instance, if the citizen is required to dig deeper for a passport, a driver’s permit or other bureaucratic elements on the list for increased costs, then the service must be efficient and personable. As the budget debate kicks off today with Opposition Leader Dr Keith Rowley, who has a reputation as a formidable debater, the hope must be for the discussions to be tough, rigorous and focused. Mr Howai set a standard for dealing with the matters at hand; but it may be too much to expect that the politicians on both sides of the House will divest themselves of the politics. However, they must remember that they are there not merely to score points and garner votes for their party but to ensure that the affairs of the country are managed in the best interest of the whole population—and that the right decisions are sometimes the least popular ones.