A draft of the ‘Review of the Tax System’, prepared under the Guyana Threshold Country Plan Implementation Project (GTCP/IP) says the GRA’s tax administration reform is an important step in creating a more effective and efficient institution, focused on function. It noted that despite the country’s high tax yield, it has a weak administration. “Weak tax administration and capacity have been evidenced in minimal use of computerised information systems, e-governance and very weak capacity to conduct tax analysis, tax investigations, in-depth field audits, and enforce collections,” the review said. It added that local conditions, including organised smuggling, loss of skilled professionals to emigration, weak legal framework for contract enforcement and weak accounting practices have been worsening the problem.
According to the review, tax administration shortcomings have been recognised over recent years and are being addressed through ongoing reorganisations, systems strengthening and training programmes. It said a functionally-based organisation allows staff to develop areas of expertise in functional areas, such as audit, taxpayer service, collection and enforcement, while also creating an organisation that fosters its own checks and balances.
Moving to a functional organisation, the review added, would also allow the GRA management to take full advantage of the information that can be generated by the Total Revenue Integrated Processing System (TRIPS). What is more, it said clear laws and regulations empowering taxpayers with the knowledge needed to comply with the tax law are vital for overall success of the new structure. However, towards this end, it noted that there are still important steps to be taken to make change a reality. It also stressed that such a major change must be managed and cannot be trusted to “happen” organically. “There is evidence that suggests either the change is being managed inefficiently, or that there is less than full commitment to creating new organizational structure in GRA,” the review said, while observing that there was no organisational change steering committee. “Managing change of this magnitude is complex. A formal group needs to be created to oversee this process to ensure a smooth transition,” it added.
Further, the review said there are myriad issues and details with respect to reforms in human resources, creation of divisions and positions and policy determination with respect to internal communication and performance in GRA that are still to be addressed. The reform of the GRA would benefit from donor support of long-term resident advisors in each of the functional areas who would serve as counterparts to GRA personnel from a year to two years while reforms are implemented. Meanwhile, it recommended that a steering committee be set up to oversee the change management.
In the area of legislative reform, the review said by rationalising rates, increasing the tax base and doing away with “nuisance” taxes, the policy reforms would help create a tax system that is transparent, easier to administer and which should maintain or increase revenues. “Presently there are real concerns about the powers and ability of the GRA to enforce tax law under the current tax administration provisions in the various tax laws,” it explained.
As a result, it added, policy reforms would only be effective if they are accompanied by reform in the tax administration provisions in tax laws.
Looking at short-term reforms, the review noted that there is confusion over the legal right of the GRA, outside court orders, to require self assessment, audit taxpayers, seize property, amend taxpayer self-assessments or deem assessments for non-filers, seize property and assets of firms that do not pay PAYE and withholding tax and to require firms to submit declarations. “Many of these issues cannot wait for a new law to be drafted,” it said, “but should be dealt with by amending the current law.” It added that the amendments should be drafted with an eye toward long-term reform, for which they can serve as precursors.
Additionally, it noted too that those responsible for enforcing and interpreting the law should agree on meaning and interpretation of statutes, citing major differences that currently exist among GRA administrators. It was reported that there has been a considerable turnover in GRA legal staff in recent years and the current staff is young and not specifically trained in tax law. Consequently, it was suggested that in the immediate term, major stakeholders need to convene and decide on the correct interpretations and proper channels to deal with disputes.
Noting that the GRA reorganisation would take several years to complete, the review said in the long term it should be complemented by drafting a comprehensive tax administration law, consolidating all tax administration provisions of the tax laws into one statute. “A single tax administration law that applies to all taxes and that is written simply with clear informational brochures for the public and tax practitioners is the optimal solution for Guyana,” it declared, while identifying the Value Added Tax (VAT) law as being better than income tax laws on administrative issues.
In fact, it pointed out, tax administration issues are now dealt with in each of the tax laws and there are “conflicting and confusing statutes,” giving rise to many different interpretations. As a result, enforcement has been uneven, undermining voluntary compliance.
One example is the Fiscal Enactments (Amendments) Act, passed in 2003, which created new penalties for late payments and non filers.
However, officials at Inland Revenue said the new rules were so complicated that the GRA “just stopped charging penalties for the offences, thereby reducing compliance and penalising those who obey the law and pay taxes on time.”
The review recommended that the penalty amounts for non-compliance be adjusted to provide incentives for compliance, noting that many of them are simply flat and too low. The fine for non-filing Pay As You Earn (PAYE) returns is $10 a day and it has been found that such low penalty amounts coupled with non-enforcement and the appeals process combine to create incentives for tax payers to delay paying tax.
Another recommendation is for consolidation of the income tax into one law. Currently, the taxation of income and wealth is divided into six different Acts. The review said two of them, the Property Tax Act and the Estate Duty Act, should be repealed, while the others, the Income Tax Act, Income Tax (In-Aid-of-Industry) Act, the Corporation Tax Act and the Capital Gains Tax Act should be consolidated into one law. It said these separate laws require complex cross-referencing to maintain consistency, particularly since they were drafted at different times. “A consolidated income tax act would allow for consistency in definitions, remove the need for cross-referencing and be written in clearer language consistent with creating improved understanding of the compliance requirements under a self assessment system,” it said.
The review also urged a section in the law setting out the rights of taxpayers. This is based on the argument that the foundation of voluntary tax compliance systems is the clear understanding of taxpayers’ rights.