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Saturday, July 12, 2025

Does Govt collect enough taxes?

by

20130906

The Gov­ern­ment is leav­ing bil­lions of tax dol­lars un­col­lect­ed be­cause of its fail­ure to es­tab­lish a uni­fied tax au­thor­i­ty, says for­mer Cen­tral Bank Gov­er­nor Ewart Williams.Such a tax au­thor­i­ty would bring the in­come tax, VAT and cus­toms de­part­ments un­der one roof and would re­duce the like­li­hood of tax eva­sion, which Williams de­scribed as "ram­pant."T&T has a sim­pli­fied, flat tax sys­tem with a $60,000 in­come thresh­old be­low which no tax is paid and a charge of 25 per cent on every dol­lar earned above $60,000.

The re­vised es­ti­mate of the amount of tax­es col­lect­ed in the 2012 fis­cal year was $46.4 bil­lion, while the Gov­ern­ment ex­pects to col­lect around $50 bil­lion in 2013.For years, min­is­ters of fi­nance have been con­cerned that with T&T's en­er­gy re­sources in de­cline, the coun­try would have to max­imise non-en­er­gy tax­es in the fu­ture.This has led to calls for re­forms to the tax sys­tem to en­sure greater com­pli­ance by more tax­pay­ers, which would al­low more tax­es to be col­lect­ed.

In his 2013, Min­is­ter of Fi­nance Lar­ry Howai pledged to con­duct a com­pre­hen­sive re­view of the cur­rent tax sys­tem that would be com­plet­ed in fis­cal 2013, which ends on Sep­tem­ber 30.Howai said that, in the in­ter­im, he would seek to boost non-en­er­gy rev­enues by ad­dress­ing the long-stand­ing is­sues of tax­es on prop­er­ty and the fu­el sub­sidy.

He said: "The trans­for­ma­tion of Trinidad and To­ba­go in­to a mod­ern high-per­form­ing en­gine of growth would re­quire a fis­cal regime which would en­hance the com­pet­i­tive­ness and pro­duc­tiv­i­ty of the na­tion­al econ­o­my in par­tic­u­lar the non-oil econ­o­my while at the same time gen­er­at­ing ap­pro­pri­ate pub­lic rev­enues to meet our ac­knowl­edged com­mit­ments.

While we have re­vised reg­u­lar­ly our oil and non-oil tax regimes, evolv­ing and chang­ing do­mes­tic and in­ter­na­tion­al con­sid­er­a­tions have com­pelled us to con­duct a com­pre­hen­sive re­view of the cur­rent tax struc­ture.I shall do so in fis­cal 2013. I en­vis­age an out­turn over the medi­um-term which would en­sure that the coun­try gen­er­ates the rev­enue to meet our re­quired pub­lic ex­pen­di­ture.

In the in­ter­im, we have ex­am­ined sev­er­al sce­nar­ios for ar­riv­ing at a bal­anced bud­get with­in our pro­posed time-frame, which the min­is­ter had iden­ti­fied as be­ing by 2016.Three (3) im­por­tant ini­tia­tives have been iden­ti­fied:

�2 Land and Build­ing Tax

First is the Land and Build­ing Tax. Dur­ing the course of the next fis­cal year I pro­pose to put in place a regime which will cov­er res­i­den­tial, com­mer­cial, agri­cul­tur­al and in­dus­tri­al land and this regime will be fair­er and more eq­ui­table than that which was pre­vi­ous­ly pro­posed.We shall con­tin­ue the waiv­er of tax li­a­bil­i­ties which com­menced in 2010 un­til the com­plete frame­work for im­ple­ment­ing this tax is put in place.

�2 Fu­el Sub­si­dies

Sec­ond, is the fu­el sub­sidy. I pro­pose to ad­dress the in­ef­fi­cient al­lo­ca­tion of re­sources and the as­so­ci­at­ed bud­getary im­pli­ca­tions of the fu­el sub­si­dies as we move to­wards a bal­anced bud­get over the medi­um term.

�2 Tax Col­lec­tion

Third, is a com­pre­hen­sive re­view of our tax sys­tem. This re­view will cov­er the en­tire tax sys­tem, in­clud­ing tax pol­i­cy, ad­min­is­tra­tion, and en­force­ment. It will en­com­pass all sources of gov­ern­ment rev­enue and fo­cus on tax rev­enue, in­clud­ing per­son­al and cor­po­rate in­come tax, Val­ue Added Tax and ex­cise du­ties as well as cap­i­tal and prop­er­ty tax­es. It will al­so ex­am­ine the net ben­e­fits to the gov­ern­ment for charg­ing fees for the goods and ser­vices it pro­vides."

Not much has been heard of that ex­er­cise since the min­is­ter's an­nounce­ment and with less than 72 hours to go be­fore he presents the 2014 bud­get pack­age, there is some doubt con­cern­ing the com­ple­tion of the tax re­view. The pre­vi­ous Peo­ple's Na­tion­al Move­ment (PNM) ad­min­is­tra­tion had done a sig­nif­i­cant amount of work on the cre­ation of a uni­fied tax au­thor­i­ty, which the PNM called the T&T Rev­enue Au­thor­i­ty.

In de­liv­er­ing the 2010 bud­get, then Fi­nance Min­is­ter Karen Tesheira spoke of the es­tab­lish­ment of the T&T Rev­enue Au­thor­i­ty. She said Gov­ern­ment's plan was "to pro­mote in­sti­tu­tion­al re­form in sev­er­al ar­eas of ac­tiv­i­ty in­clud­ing lo­cal gov­ern­ment ad­min­is­tra­tion, pen­sion and prop­er­ty tax ad­min­is­tra­tion and our cus­toms and tax ad­min­is­tra­tion through the for­ma­tion of the Trinidad and To­ba­go Rev­enue Au­thor­i­ty."

Lat­er in that bud­get pre­sen­ta­tion, Tesheira made it clear that the es­tab­lish­ment of the Rev­enue Au­thor­i­ty would have a sig­nif­i­cant im­pact on tax col­lec­tion.She said: "While the es­tab­lish­ment of the Trinidad and To­ba­go Rev­enue Au­thor­i­ty in the new­fis­cal year is ex­pect­ed to boost do­mes­tic rev­enues, the full im­pact of this very im­por­tant fi scal re­form is not ex­pect­ed for an­oth­er year or so.

The fis­cal out­look is there­fore for a much stronger per­for­mance be­gin­ning in 2011 and con­tin­u­ing as our fis­cal, mon­e­tary and struc­tur­al re­forms be­gin to take ef­fect."

In an analy­sis of the com­mit­ments made by the Min­is­ter of Fi­nance, the T&T Cham­ber of Com­merce out­lined some of the key fea­tures of the re­form ex­er­cise:

�2 Im­ple­men­ta­tion of a more ra­tio­nal­ly struc­tured and sim­pli­fied tax leg­is­la­tion so as to make it more co­her­ent and user-friend­ly

�2 Sim­pli­fi­ca­tion and clar­i­fi­ca­tion of the rules re­lat­ing to the tax­a­tion of ben­e­fits-in-kind pro­vid­ed to em­ploy­ees;

�2 Con­sol­i­da­tion of the sys­tem of cap­i­tal al­lowances which are cur­rent­ly pro­vid­ed for un­der var­i­ous pieces of leg­is­la­tion;

�2 In­tro­duc­tion of pro­vi­sions deal­ing with Trans­fer Pric­ing which were pro­posed in last year's Bud­get State­ment but not im­ple­ment­ed;

�2 Ad­dress­ing the thorny is­sue of the re­form of the Board of In­land Rev­enue and the Cus­toms and Ex­cise Di­vi­sion and find­ing a mod­el which de­liv­ers ef­fi­cien­cy

We rec­og­nize, how­ev­er, that such a re­form ex­er­cise may be a long-term process, but in the in­ter­im, cer­tain ad­min­is­tra­tive re­forms can be im­ple­ment­ed which may ease the com­pli­ance bur­den of tax­pay­ers, in­clud­ing:

�2 Ra­tio­nal­iza­tion of the tax cal­en­dar which cur­rent­ly pro­vides for a mul­ti­tude of pay­ments and fil­ing dead­lines for In­come Tax, Cor­po­ra­tion Tax, PAYE, VAT and N.I.S.Ap­ply­ing a con­sis­tent rate of penal­ty, which should be es­tab­lished at no more than 25 per cent, to all tax­es.

�2 Re­duc­tion in the in­ter­est rate ap­plic­a­ble to late pay­ment of tax­es. Cur­rent­ly the in­ter­est rate with re­spect to In­come Tax and Cor­po­ra­tion Tax is 20 per cent while a 24 per cent rate of in­ter­est ap­plies to VAT. Such in­ter­est rates are op­pres­sive and should be re­vised to be more in line with pre­vail­ing mar­ket rates and per­haps pegged to the Cen­tral Bank re­po rate or oth­er sim­i­lar rate.

The Cham­ber is al­so pleased to see that a tax­a­tion regime on prop­er­ty is ex­pect­ed to come in­to ef­fect with­in a year's time, as we be­lieve that Gov­ern­ment is los­ing sub­stan­tial rev­enue through non-col­lec­tion of this nec­es­sary tax. What we would like to see is a tax­a­tion struc­ture that is ul­ti­mate­ly in line with the cur­rent mar­ket val­ue of prop­er­ties, but al­so takes in­to con­sid­er­a­tion the cur­rent eco­nom­ic cli­mate.

We ex­pect that the tax rev­enue will be used for pur­pos­es that im­prove the sur­round­ing ar­eas and ser­vices of the prop­er­ties in that com­mu­ni­ty. Rev­enues col­lect­ed from the prop­er­ty tax should not be­come part of the con­sol­i­dat­ed fund and ex­pend­ed in oth­er ar­eas.The au­thor­i­ties must make the ex­pen­di­ture ac­counts of the tax rev­enue trans­par­ent and avail­able to the pub­lic. The waiv­er on lands and build­ing tax can­not con­tin­ue ad in­fini­tum and so we wel­come the in­tro­duc­tion of a mod­ern and eq­ui­table prop­er­ty tax regime.

The Cham­ber will con­tin­ue to mon­i­tor the progress of this im­ple­men­ta­tion and of­fer its as­sis­tance with the set up of the regime.

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:

�2 The in­tro­duc­tion of the PAYE sys­tem in 1958;

�2 Quar­ter­ly in­stall­ments on non­emol­u­ment in­come in 1963;

�2 With­hold­ing tax on non­res­i­dents in 1966;

�2 Pe­tro­le­um tax­es in 1974; and

�2 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 pit­fall­sand 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 de­pen­don 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:

�2 Im­prove­ment in the mon­i­tor­ing of the per­for­mance of the tax sys­tem by in­tro­duc­ing reg­u­lar sta­tis­tics of in­come re­ports and tax com­pli­ance analy­ses;

�2 Re­duc­tion in rev­enue leak­age by im­prov­ing the num­ber and ca­pa­bil­i­ty of the re­source­sal­lo­cat­ed to col­lec­tion;

�2 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

�2 Mod­ernising the tax ad­min­is­tra­tion by re­view­ing hu­man re­source re­quire­ments andim­plant­i­ng the trans­for­ma­tion of the BIR to an au­tonomous rev­enue au­thor­i­ty with strong­man­age­ment 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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