The Tax system and changing the relationship with GRA
Guyana’s tax system is far from efficient, equitable and fair. This is evident, for example, in the prevalence of high tax rates that encourage smuggling, evasion, under-reporting, under-invoicing and corruption, as well as frequent requests for waivers and remissions.
Thus, in August last year, Government established a four-person Tax Review Committee charged with coming up with a range of recommendations to improve the system.
It was anticipated that the Committee would have presented its report by end-December 2015, to enable some amount of implementation in the 2016 Budget. Unfortunately, the report was submitted on January 18, 2016 and this was just too late for Cabinet to consider and pronounce on all of the recommendations.
Nevertheless, several of the fiscal measures that were announced in the 2016 budget were found to be consistent with the Committee’s recommendations.
Finance Minister, Winston Jordan said that the Government is aware that to achieve its goals, it must have the revenues to spend. As an independent nation, he said that we must first look to ourselves to find the money to develop our country. Admittedly, Jordan said that Guyana was able to achieve the revenue targets that were set over the years.
He said, “We know from this experience that we have the ability to achieve realistic revenue targets using the tax structure and tax rates that we have currently. What we have noticed though is that our tax structure yields uneven amounts of revenue.”
Jordan continued, “The numbers suggest that there is a large population of delinquent taxpayers out there, prominent among who are the self-employed and persons paying Tributors’ tax. We are concerned about the failure of both categories to pay their fair share of taxes.”
The Finance Minister said that a simple analysis of tax collections has shown that only three parts of the tax structure are contributing meaningfully to government revenues: income tax, production and consumption taxes, and import duties. He said that it is with the need to remedy this situation of revenue leakage that the Guyana Revenue Authority (GRA) is being asked to undertake a sensitization and awareness exercise in order to help taxpayers to fulfill their obligations.
He said, “We will encourage GRA to intensify its efforts at undertaking evaluations of tax revenues by impact of exemptions, economic centres and economic sectors. The reason is to enable better targeting of those taxpayers who are not in compliance with the tax laws and to understand the reasons for non-compliance, so that we could help them to do better.”
The Finance Minister said that once the evaluations are completed, Government would be able to determine the economic value of concessions to the country, align economic centres with geographic regions and gain a better understanding of which industries are not paying their fair share of taxes and why.
Jordan said that tax transactions are about relationships. He said that most tend to focus on the relationship with foreign investors or large investors to support their shift of resources from their home country to ours.
He said that it is important that the Government adds capacity to its production structure. The Finance Minister said that this can be done by offering tax exemptions and tax holidays with the hope of achieving a net gain in tax revenues.
But in a study done in the mid-2000s, the Finance Minister said that it was observed that small businesses make up approximately half of the Guyana economy. He said that these investors, small as they might be, can transfer resources from consumption to investment.
In this way, the Finance Minister said that they too can help add capacity to our production structure and expand economic opportunity.
“Yet, our attitude towards small businesses with tax consequences and real potential to contribute to the growth and development of Guyana is rather flippant. Too many of these businesses plan their expenditure without taking the tax impact into account. We must enable small businesses to build tax impact models into their business plans so that they have a true sense of the cash flows needed to successfully operate the business,” the Finance Minister expressed.
On the vexed question of refunds, the Finance Minister said that the Government is aware of the view of the taxpaying public that once their money gets into the hands of the GRA, it is not coming back out. The Finance Minister said that this is the frustration that many taxpayers experience even after they might have been advised that they were entitled to a refund. He said that this goes for those taxpayers who expect VAT and income tax refunds.
Jordan asserted that Government believes that where refunds are to be granted the taxpayers must get them on time, unless there is good reason to delay the refund. As an organization that is seeking to build taxpayers’ compliance and confidence, the Finance Minister made it clear that GRA must change the way taxpayers feel about it.