Part I
Introduction
Beginning last December 4, 2011 my Sunday columns have been re-visiting the global economic and financial crisis that erupted four years ago in light of two basic considerations. First, its unexpectedly long duration and the continued absence of confident signs of recovery. And second, the emergence of both a new geographic epicentre to the crisis (the European Union, replacing the United States) and a new set of economic contradictions stalling growth (persistent joblessness, faltering private consumption and investment in rich countries, and the rise of strong political and market hostility towards continued stimulus spending). As readers know, everywhere stimulus spending had spearheaded government efforts aimed at recovery during 2008-2010.
Starting this week I shall switch focus and begin to address a number of local topics. These have become urgent because of 1) what was revealed in my coverage of the global crisis, and 2) the opportunity created by the November 28 General and Regional Elections for serious engagement of a number of intransigent problems confronting the Guyana economy. My switching topics at this point however, does not imply that the global crisis has become in any way less of an urgent issue.
Tax reform
The first local topic I shall engage is the recent PPP/C’s administration establishment of ‘another’ tax reform initiative. I say ‘another’ advisedly, as both the government and its IMF benefactors have been touting, up to very recently, that there are already serious and successful fiscal reform efforts underway! Thus the IMF in its recent (June 2011) Country Report on Guyana noted the effects of the fiscal reforms led by the Guyana Revenue Authority (GRA). It refers approvingly to specific ongoing measures, including improvements to the integrated tax information system; the operations of the tax inspectorate; the functionality of the GRA; as well as the training of tax personnel.
Meanwhile, the latest Guyana Poverty Reduction Strategy Paper (PRSP), 2011-2015, states that a Tax Reform Action Plan (TRAP) has been in place since 2003. The aims of this plan include 1) broadening the tax base; 2) reducing marginal tax rates; 3) enhancing equity and transparency; and 4) strengthening the tax administration system. Measures such as the Vat and Excise Tax legislation are part of the reforms under the TRAP, as well as the introduction of the TIN (tax identification number); organizational reform of the Guyana Revenue Authority (GRA), including IT reform; and the adoption of the total revenue integrated processing system (TRIPS).
Finally, the PRSP boasts, “the reform actions of the GRA have met with tremendous success. Tax revenues have grown by an annual average of 13 percent since 2003.”
Committee or
National Commission
Despite these publicized efforts and the boast, I believe the tax system remains in dire need of deep reforms. Indeed, I shall argue that these reforms are so deep-seated as to require a far different approach for their resolution than is possible through a Tax Reform Committee made up of persons who are seen as having good working relations with the PPP/C administration over the years, no matter how skilled, proficient and experienced they are.
Today the tax system is fractured, and far too costly, burdensome and inefficient. It is dysfunctional in relation to promoting economic efficiency, growth, development and welfare, because the deep-seated problems are as much political in nature as they are technical (economic).
The sure way to overcome this is through the establishment of a broad-based National Commission on Tax Reform along the lines (and for the reasons) to be outlined in this and later columns.
The premise of my proposition is that, at the core of any well-functioning tax system, is the notion of an acceptable ‘political-social contract’ between the major stakeholders. In Guyana, these stakeholders comprise, but are not limited to 1) individual taxpayers; 2) corporate taxpayers; 3) the tax administration authorities; 4) the governmental authorities (responsible for taxation laws); 5) relevant corporatist bodies like professional associations, workers and farmers organisations, consumer groups; and 6) the general public, especially the intended beneficiaries from the expenditure of tax revenues received.
Readers should note, participants in the illegal underground economy (largely fuelled by tax evasion activities), constitute a very substantial fraction of stakeholders in the tax system. However, I shall deliberately ignore them, since it is my conviction that economic activities founded on illegality cannot be an acceptable foundation for the development of any country in today’s globalized environment.
Stakeholders
I shall now turn to a brief review of the situation of some of the major stakeholders in order to highlight why a wide-ranging National Commission on Tax Reform is needed to help foster the political-social contract necessary for generating a reformed and acceptable taxation system.
Among individual taxpayers, both tax avoidance and tax evasion are practised as the flagrant norm. From reports, individual taxpayers perceive no acceptable connection between the services they receive from the governmental authorities and their payment of taxes.
Anecdotal descriptions suggest many view the payment of taxes as a ‘compunction’ and far from a ‘willing’ exchange for benefits they expect to receive. There is therefore, no notion of a binding political-social contract between taxpayer and the tax imposing authorities. In this circumstance, the state is not regarded as a moral leader, which raises the question as to why this is the case.
In large measure the behaviour of the law-making authorities is responsible.
The government is seen as continually abusing the fairness of the system because the laws, regulations and policy guidelines implemented seem to favour their cronies and political constituencies and to dis-favour or punish those political constituencies not in support, and regime critics. Meanwhile, the population at large reluctantly accepts the status quo as one in which the tax system is failing to execute a political-social contract acceptable to key stakeholders.
The principles of openness, transparency, fairness and justice do not stand out.
Next week I shall continue this discussion of stakeholders situations and then go on to pay some attention to the more economic features of the tax system and the primary goals of its reform.
