Billions of dollars in taxes are not collected each year and this points to a major problem of management of the Guyana Revenue Authority (GRA) which seems unable to prevent or control revenue leakage, Sunday Stabroek Business Page columnist Rawle Lucas says.
“Tax collection seems to suffer the most in areas where the GRA is supposed to be responsible for collecting the taxes. The concern that exists here is that four areas of revenue collection that rely exclusively on GRA, namely self-employment taxes, property taxes, Customs duties and the miscellaneous group of taxes, do not seem to be doing so well. Together, they contribute less than four per cent of revenues collected,” Lucas wrote in his column yesterday.
“This outcome points to a major problem of management of GRA which seems unable to prevent or control revenue leakage. These are areas that require good interpersonal skills and excellent customer service. The GRA will have to begin the new year with a vastly different outlook towards taxpayers,” Lucas, who was appointed Chairman of the GRA board this year, declared.
Tax revenues last year was $135.8 billion while in 2013 it was $126.5 billion but its performance against budget has been declining since 2011.
Lucas highlighted that revenue collection is not at its optimal position with billions not being collected. Among other things, the economist highlighted that the self-employed pay minimal taxes, under-invoicing might be more rampant than is being disclosed and customs officials seem to exercise much more discretion with importers than one could have imagined.
Since the advent of the new board at the GRA, a number of senior officials were sent on leave because of the long periods that had accumulated. Two weeks ago, long serving Commissioner General, Khurshid Sattaur was sent on leave by the board to facilitate an upcoming comprehensive audit of the agency by an international firm.
Lucas in his column noted that the tax level – which refers to the share of income (gross domestic product) that is generated by the economy that goes to the government – from 2006 to 2014, has been on average 21% of GDP per year. However, he noted that only three of the five parts of the tax structure seem to make significant contributions to government revenues.
He explained that the 21% is made up primarily of production and consumption taxes which account for 10% of the tax level or 48% of the revenue collected by government. The other major contributor to the tax level is the income tax which accounts for 8% or 38% of government revenues. Trade and travel taxes make up the rest with a 3% contribution to the tax level and a 14% contribution to the revenues.
The economist said that the other two taxes, the property tax and the miscellaneous group of taxes, appear to contribute virtually nothing to government revenues. “It is unimaginable that the property tax, which is directed at the largest asset base (income, moveable and immoveable property and rights) in the country, contributes virtually nothing to government revenues. It is also surprising that with the level of business activity taking place in Guyana the miscellaneous taxes also seem meaningless to the economy by way of revenue collection,” he said.
As it relates to income tax, Lucas said it is the most complex of the tax structures and plays a big part in determining what happens in the rest of the economy. However, he said, despite its complex structure, income taxes account for 8% of the tax level.
According to the economist, this means that Guyanese are able to keep and determine how to spend 92% of the money that they earn. “This level of disposable income suggests one of two things, either the average income is closer to the exemption threshold or a substantial amount of income escapes the tax structure. The story about this, when eventually told, might not be all that wholesome,” he said.
He noted that within the income tax structures, there are at least four substructures which are the individual income tax, the self-employed income tax, the company tax, and the Tributors’ tax. Two of the taxes, the individual income tax and the Tributors’ tax, are usually deducted from source via the withholding mechanism known as the pay-as-you-earn (PAYE) system which is done by employers on behalf of the government. The withholding mechanism is also used on unearned or passive income such as interest on bank accounts, dividends and other distributions from companies.
“The withholding mechanism seems to work well since individuals who work for third party employers contribute about four per cent to the tax level. The greater challenge appears to come from those taxpayers who are required to be self-compliant, namely the self-employed and private companies,” Lucas wrote.
He said that most private companies seem to be self-compliant with this group of taxpayers contributing an estimated 4% to the tax level.
“The conclusion that one reaches is that the self-employed do not pay taxes to the government. They do, but the amount is minimal,” he asserted. The economist said that this category encompasses several professions, trades, and activities such as doctors, lawyers, accountants, financial analysts, investment advisors, engineers, and educators. They also include shopkeepers, mechanics, building contractors and sub-contractors, minibus owners and operators, boat operators, small-scale miners, pavement vendors and other categories of taxpayer who own and direct their operations.
“It is a large catchment of taxpayers who do not seem to pay their fair share of taxes. These taxpayers need to be sensitized about their obligations to file tax returns and to register with the GRA if they have not done so. While the tax base is broader than the revenue collected seems to suggest, it is clear that the income tax structure is unable to harness revenues from all the possible income sources,” he said.
In terms of trade and travel taxes, the economist said this also raises eyebrows. “The focus here in particular is the import duties on goods imported into the country. The value of imports constitutes about 64 per cent of GDP for the years 2012 to 2014. Further, the average ad valorem rate on all items imported into the country is 33.25 per cent. This means that on the reported annual average import values of $388 billion, Guyana should have collected an estimated $129 billion in import duties,” he wrote.
He acknowledged that some of this expected revenue is lost to treaty obligations, public policy goals and investment strategies. “Persons familiar with import transactions estimate that those factors should not exceed 50 per cent of potential revenues. Yet, duties contribute a mere three per cent to the tax level and no more than 14 per cent of tax revenues,” Lucas said.
“It is believed that enquiries into the causes of this revenue gap would reveal two things. One is that under-invoicing might be more rampant than is being disclosed. Under-invoicing leads to an underestimation of the value of imports and by inference, the import tax base, and ultimately the revenues collected. In the broader gap analysis, under-invoicing also suggests that the resource gap in Guyana is much larger than projected. This further implies that the level of unreported income and uncollected income tax is much higher than imagined,” he asserted.
“The second thing revealed by the revenue gap is that Customs officials seem to exercise much more discretion with importers than one could have imagined. The revenue loss to Guyana through such discretionary behaviour is phenomenal. Too much discretion in the hands of Customs officials could distort competition and the true behaviour of the Guyana economy,” Lucas said.