Last update: 11-Dec-2013 10:53 pm
Wednesday, December 11, 2013
Trinidad & Tobago Guardian Online
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Technology alone not enough for tax administration
In its analysis of the 2013 budget, the accounting firm, PriceWaterhouseCoppers submitted the following:
Since the enactment of Ordinance 1 of 1917 which brought into existence the first income tax regime in Trinidad and Tobago, our taxation system has mushroomed from generating income of £95,000 in that first year to a current yield of $40bn in 2012. But what can be said of those intervening years? There have been some significant developments, including:
• The introduction of the PAYE system in 1958;
• Quarterly installments on nonemolument income in 1963;
• Withholding tax on nonresidents in 1966;
• Petroleum taxes in 1974; and
• Value Added Tax in 1990.
In addition to these developments, 1966 saw the establishment of the Board of Inland Revenue charged with the responsibility of the administration of taxes in Trinidad and Tobago. Our tax system and the fiscal policies that support it continue to evolve. As the economy changes over time, new markets emerge, new dynamics take place and shifts in relative importance between sectors and factors of production are a natural corollary.
While views as to the performance of the T&T economy relative to the tax system may differ depending on the empirical evidence relied on, few will challenge the view that there is an urgent need for a reform of the tax system if there is to be an increase in the efficiency and maximation of revenue generation. Tax reform is usually necessary when there is a change in the economic fundamentals which render the existing taxation regulation insufficient or misaligned to the current functioning of the economy.
It may also be required when there are inadequacies within the current system. It is on the latter that this article is focused. Over the last four decades reform efforts in tax administration in developing countries have generally centered on information technology (IT). The gains from adopting new technology, however, have often failed to reach expectations. Successful reform efforts did not result simply from computerising antiquated processes, but from re-engineering whole systems.
Radical improvements in tax administration require changes in organisation and methods. It is no secret that the tax administration in T&T has been plagued with numerous pitfalls and inefficiencies which have negatively impacted not only revenue collection, but also the attractiveness of the investment landscape within T&T to local and foreign investors. The challenges faced by the tax administration include deficiency in record keeping, inadequate office facilities and staffing constraints to name a few.
Routine processes such as audits and objections are unreasonably protracted which result in significant disruptions to business operations, financial burdens and the creation of bottlenecks at the Tax Appeal Board which is already bogged down with a significant backlog of cases stemming from disruptions in its operations over the last few years.
An appropriate reform strategy must consider the obstacles and constraints arising from such organisational rigidities as the public service rules and regulations, including bases for and constraints on, reward and promotion, the salary structure, and procedural hurdles in acquiring expertise and equipment.
Ultimately, the pace of change and the success of any modernisation programme depend on human resources—on the training, skills and motivation of the people who are expected to administer the system and use and operate the technology. As one observer noted: “Technology alone cannot do the job of good tax administration, and good tax administration can be carried out without technology.”
Any reform of the tax administration system should be gradual and must include:
• Improvement in the monitoring of the performance of the tax system by introducing regular statistics of income reports and tax compliance analyses;
• Reduction in revenue leakage by improving the number and capability of the resources allocated to collection;
• Improvement in compliance by focusing on the identifying and registering those taxpayers who are out of the net and strengthening the enforcement unit to allow for greater authority in enforcing collections; and
• Modernising the tax administration by reviewing human resource requirements and implanting the transformation of the BIR to an autonomous revenue authority with strong management and business acumen so that they can better understand the environment in which their stakeholders operate and on which they base their decisions.
The Finance Minister has recognised the dire need for the revamping of the taxation system and has committed to undertake same in 2013 with an in-depth look at taxation policy, administration and enforcement with emphasis on personal income tax, corporation tax, value added tax, excise duties and capital and property taxes.
We look forward to the promised consultation, and hope that it will occur throughout the process up to and including legislative drafting so that we can minimise the disconnect that sometimes occurs when policy makers, administrators and taxpayers each seek to apply their own understanding of various measures.
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