A small but significant correction arises out of the article ‘Ram blasts bad spending by “big” gov’t’ (SN, October 13, 2017). I recall questioning a reported remark by Mr Winston Jordan, Minister of Finance, about no new taxes but expressed offence at his assertion on the taxes introduced by reference to a game of cards. In fact, this is what he said: “I’ve never introduced a new tax… they were all the same tax. All we were doing is playing cards … we were shuffling them around and so forth”. I took offence for two reasons. Taxation constitutes a deprivation of property, albeit a legitimate one, and no one, let alone the man in charge of taxation policy, should treat it with flippancy.
The second is that it suggests that the work of the Tax Reform Committee (TRC) had no useful purpose. The committee was made up of two accountants (Godfrey Statia, Christopher Ram) and two economists (Drs Maurice Odle and Thomas Singh) with outstanding support from two officials from the Ministry of Finance. Given the demanding deadline set by the Minister, the work was done mainly at weekends and resulted in a 133 page report of six sections and an Introduction and Executive Summary. Even by the narrowest of measures, there were ninety-six specific recommendations.
I am not aware that the Report has been released to the public but that references to the committee rather than the Report have been made in relation to VAT on water and electricity. When the committee sat and argued in the boardroom of Ram & McRae about taxation and poverty alleviation, income inequality, wealth disparity, egregious evasion and administrative corruption, we did so as professionals interested in providing the tax aspect of fiscal policy and public administration as tools for economic and social development. On water, I recall arguing that if I want to enjoy the luxury of a swimming pool then there is no reason why the water I use should be free of VAT, while many items of necessity used by lower income persons are taxed.
For the public record, here is what the TRC recommended on water and electricity: “The water and electricity authorities should determine the levels of consumption required for an average household. VAT should be applied to levels above this amount [sic].” It is clear that the TRC did not make any specific recommendation on the amount, or the rate of VAT, on water and electricity.
As the Minister continues work on Budget 2018, which commendably will again be early, he may wish to consider that the majority of the TRC’s recommendations remain unimplemented. So far as I can recall, the TRC never had the opportunity to discuss the Report or any of its recommendations with the Minister. Here are some of the recommendations:
The introduction of a progressive personal taxation system with a threshold of $750,000 and bands as follows: $750,001–G$1,000,000 @ 20%; $1,000,001–G$1,500,000 @ 25%; above $1,500,000@ 35%.
Remove income tax exemptions granted to certain office holders, such as the President, Attorney General, Chancellor, Chief Justice and Auditor General. That for Ministers, Public Officers and Officials, the VAT should be restored on all passenger car imports and the differentiation of cars by age should be removed.
Reduce immediately the corporate tax rate on telecommunication companies from 45% to 40% in 2016; and on commercial companies from 40 % to 35 %.
Implement unlimited carry forward and unlimited utilization for losses incurred in the first three years; losses incurred in subsequent years should be limited to seven years and subject to a 50 per cent recovery in any one year.
Provide tax incentives, which themselves should be based on clear and rational criteria, through tax laws, which must include provisions for an annual review and withdrawal of the incentives where conditions are not met.
Introduce a thin capitalization requirement of 1:5 where equity is at least one fifth of interest bearing capital; or in the alternative, the interest deductible for corporation tax purposes be limited correspondingly.
To widen the tax net, grant a tax amnesty and address the presumptive tax.
Increase the Value-Added Tax registration threshold from $10 million to $12 million, reduce the standard rate to 14 % and introduce an intermediate rate of 7 % for some types of goods. The Summary of Proposed Measures (set out on pages 1-19 of the Report) refers to a revised list of zero-rated items is provided in Appendix II. In respect of Education Services and Materials, the TRC recommended that education services be exempt and twenty-one items of education material, including all textbooks, children’s books, dictionaries, pencils, lunch kits and charts, continue to be zero-rated while others, including recipe books, instructional newsletters and music manuscripts be charged at an intermediate rate of 7%.
The TRC recommended that a) the VAT Return should provide for explicit adjustments to credit carry forwards caused by refund claims or rejection of these claims; b) GRA pay all refunds within 15 days of a claim being verified, or if an audit is forthcoming, notify the taxpayer within 15 days; c) any audit be completed within 60 days; and d) reduction of the tax periods before which a claim for refund can be made from six to three.
Some of the recommendations were expected to be controversial, particularly those designed to have a redistributive effect such as the reintroduction of estate duty and taxation of dividends above a certain level. There were also some that mixed revenue with social policy such as a tobacco levy and a health levy on alcoholic beverages.
These are only some of the unimplemented measures available to the Minister of Finance. The TRC had estimated that its proposals excluding amnesty, government transfers, etc, would be revenue neutral, but that there would be some rebalancing in the system.
Hopefully, some of the proposals will be considered for the 2018 Budget.