GEISHA KOW­LESSAR-ALON­ZO

Lack­ing in­spi­ra­tion.

This is how for­mer fi­nance Min­is­ter Prof Win­ston Dook­er­an has de­scribed the T&T Rev­enue Au­thor­i­ty (TTRA) Strate­gic Plan 2023 to 2025 which was un­veiled by Fi­nance Min­is­ter Colm Im­bert in Par­lia­ment last week.

Ac­cord­ing to Im­bert with an es­ti­mat­ed do­mes­tic tax gap of up to $10 bil­lion, the Gov­ern­ment, through the TTRA, is “ac­tive­ly seek­ing” to ad­dress this fis­cal vul­ner­a­bil­i­ty and close the tax gap by im­prov­ing the ef­fi­cien­cy and ef­fi­ca­cy of the coun­try’s rev­enue col­lec­tion.

How­ev­er, Dook­er­an said the key ques­tion is, would these ini­tia­tives be trans­lat­ed in­to in­sti­tu­tion­al change, giv­en the “reg­u­lar fail­ure” of in­stru­ments for pub­lic sec­tor re­form in T&T over the years.

“It would have en­gen­dered con­fi­dence, that it will hap­pen, if ex­am­ples of suc­cess – in the do­ing- and an in­no­v­a­tive in­sight to pub­lic sec­tor re­form was cap­tured. How will the gov­ern­ment ho­n­our its fi­nan­cial com­mit­ments to those to whom it owes mon­ey?

“But a fun­da­men­tal ques­tion is one of po­lit­i­cal econ­o­my, is the tax pol­i­cy an in­duce­ment for growth in the econ­o­my?” the for­mer Cen­tral Bank Gov­er­nor ex­plained.

If not, he said the ben­e­fi­cia­ries of this would be “mi­nus­cule, on the mar­gin,” and not im­pact on the lev­el of eco­nom­ic ac­tiv­i­ty- tax­ing con­sump­tion and not in­cen­tiviz­ing pro­duc­tion.

Ac­cord­ing to Dook­er­an, this in­sti­tu­tion­al mea­sure should be fixed in a wider con­text of ex­pand­ing, not squeez­ing out rev­enue in a flat and con­tract­ing trend.

He ad­vised that rev­enue ad­min­is­tra­tion mea­sures and tax pol­i­cy re­form, there­fore, must work to­geth­er in tan­dem.

Econ­o­mist Dr Vaalmik­ki Ar­joon who al­so shared his in­sights not­ed that in the last decade, de­spite the State’s ef­forts to col­lect more tax rev­enue by not just in­creas­ing the tax­a­tion rates and the tax base, but al­so at­tempt­ing to col­lect delin­quent tax­es owed, there is a pos­si­bil­i­ty of an even high­er in­ci­dence of tax eva­sion and avoid­ance.

This, he said, may be shown by the de­cline in the ra­tio of tax­es col­lect­ed to GDP, which fell from 25 per cent in 2013 to 20 per cent in both 2019 and 2021, reach­ing its low­est point of 17 per cent in 2017.

“Rev­enue leak­ages from weak tax com­pli­ance, where peo­ple do not pay their fair share of tax­es, are like­ly in the vicin­i­ty of over $12 bil­lion – these are rev­enues the State needs to more ef­fec­tive­ly pro­vide im­proved road in­fra­struc­ture, ed­u­ca­tion­al fa­cil­i­ties, wa­ter, bet­ter health­care etc,” Ar­joon out­lined.

Such weak com­pli­ance, he said, al­so ac­counts for the high lev­els of in­equal­i­ty lo­cal­ly.

Ar­joon ad­vised that a ma­jor hur­dle the TTRA must over­come is the pauci­ty of staff which he said has in­creased com­pli­ance risk, caus­ing loss of rev­enue as nu­mer­ous en­ti­ties still are not reg­is­tered in the tax sys­tem, do not file ac­cu­rate de­c­la­ra­tions and pay on time. Un­der­staffing, there­fore, makes it more dif­fi­cult to do unan­nounced field vis­its, de­tect those who have stopped fil­ing and un­reg­is­tered busi­ness­es, and al­so lim­its more fre­quent checks and ef­fec­tive au­dits to bet­ter de­tect the high lev­els of tax avoid­ance.

An­oth­er is­sue that may al­so hin­der the suc­cess of the TTRA is cor­rup­tion in tax ad­min­is­tra­tion.

Ac­cord­ing to Ar­joon, there is a “cul­ture of cor­rup­tion” among some Cus­toms of­fi­cers, such as pay­ing a bribe to un­der­state the to­tal amount paid for im­ports.

He said this low­ers the to­tal cost, in­sur­ance and freight (CIF) val­ue used to cal­cu­late du­ties on im­ports and VAT, re­sult­ing in low­er tax­es paid by the im­porter.

“How will the TTRA ad­dress these prac­tices, as it is the same of­fi­cers that will be a part of the TTRA?” Ar­joon asked adding that many times, some of­fi­cers ex­hib­it poor work eth­ic, re­sult­ing in de­lays in clear­ing goods and hav­ing to pay cus­toms over­time to get them cleared faster which al­so dri­ve-up busi­ness costs.

He said an e-cus­toms plat­form via the sin­gle elec­tron­ic win­dow is in­te­gral for im­porters to pay all charges and du­ties on­line in­stead of the cur­rent sys­tem of lin­ing up at the port to pay us­ing cash or a man­ag­er’s cheque.

Da­ta from the glob­al fi­nan­cial in­tegri­ty re­port in­di­cates that to­tal ex­port and im­port mis­in­voic­ing since 2008 for T&T ex­ceeds US$4.1 bil­lion on av­er­age per year since 2008.

In out­lin­ing the plan the Fi­nance Min­is­ter al­so sug­gest­ed ma­chine learn­ing to im­prove tax com­pli­ance.

Not­ing this is an ex­cel­lent idea, Ar­joon said such sys­tems can quick­ly de­tect en­ti­ties that re­port un­usu­al­ly low in­come and pay low­er tax­es and should al­so draw da­ta from third par­ties to as­cer­tain if the cor­rect in­come lev­els were re­port­ed as third par­ty in­for­ma­tion can aid in de­tect­ing en­ti­ties that are un­reg­is­tered and not pay­ing any tax­es.

More im­por­tant­ly, the suc­cess of any tax ad­min­is­tra­tion al­so re­lies on pub­lic trust.

Ad­di­tion­al­ly, Ar­joon said there ought to be bet­ter val­ue for mon­ey once tax­es are paid through high­er qual­i­ty of State ser­vices.

He added that apart from mak­ing it sim­pler to file and pay tax­es through an on­line plat­form, com­pli­ance can be im­proved once tax­pay­ers are treat­ed fair­ly and eq­ui­tably. If, for in­stance, VAT re­funds are paid on time, there may be less like­li­hood of firms en­gag­ing in tax avoid­ance prac­tices.

TTMA hope­ful for VAT re­fund pay­ments

Ac­cord­ing to the T&T Man­u­fac­tur­ers’ As­so­ci­a­tion (TTMA)

there has been a “long per­cep­tion” of a need to ad­dress de­fi­cien­cies in the ex­ist­ing sys­tem of rev­enue col­lec­tion, stem­ming from lim­i­ta­tions, re­al and/or per­ceived.

Pres­i­dent Tri­cia Coos­al said it is an­tic­i­pat­ed this in­sti­tu­tion­al change can have a re­dound­ing ben­e­fit, not­ing the or­gan­i­sa­tion looks for­ward to the im­pact the TTRA would have on the ef­fi­cien­cies of VAT re­turns.

Coos­al said there are sig­nif­i­cant chal­lenges with the present sys­tem for the re­pay­ment of VAT owed to the TTMA mem­bers, es­pe­cial­ly the SMEs, faced with cash flow chal­lenges.

“Man­u­fac­tur­ers con­tin­ue to face this sig­nif­i­cant chal­lenge of VAT re­turns be­ing paid out, and im­por­tant­ly, pay­ments should con­form with­in three to six months, ac­cord­ing to law. Un­for­tu­nate­ly, we have moved away from this oblig­a­tory de­liv­er­able by those in charge of re­pay­ment of VAT,” Coos­al said.

Hope­ful­ly, she said with the TTRA, is­sues like these would be re­solved so busi­ness­es and traders can ben­e­fit from the greater ef­fi­cien­cies, con­sumers can ben­e­fit from en­hanced ef­fi­cien­cies in the time­ly de­liv­ery of goods and pos­si­bly re­sult­ing in a de­creased cost of pro­duc­tion.

The TTMA Pres­i­dent al­so echoed sen­ti­ments that while it is im­por­tant to have a high­ly ef­fi­cient and ef­fec­tive body to ef­fect change, there must al­so be com­pe­tent, skilled, knowl­edge­able and trained per­son­nel to man­age the TTRA.

Coos­al al­so ad­vised that the re­tain­ing of in­sti­tu­tion­al knowl­edge by some of the key per­son­nel should be con­sid­ered by the rel­e­vant de­ci­sion-mak­ers.

Al­so, she said rel­e­vant ca­pac­i­ty build­ing should take place among the ex­ist­ing and new staff mem­bers.

How­ev­er, the TTMA has some con­cerns.

“The as­so­ci­a­tion is fear­ful if this tran­si­tion­ing is not done op­ti­mal­ly, we would re­vert, in a short pe­ri­od of time, to an agency that is not as ef­fec­tive as it should be to the needs of all par­ties con­cerned,” Coos­al said.

Thus, she re­it­er­at­ed hu­man ca­pac­i­ty build­ing re­mains crit­i­cal.