Commentary: The taxman and the $8.5b golden goose
The minister of finance tabled the 2015-16 estimates of expenditure that opened up discussions on the budget.
There is a financing gap of $8.5 billion, which is expected to be closed by new taxes. However, the finance minister has said that "the authorities will be going after compliance initiatives more aggressively this year". What does this really mean?
Dr Phillips had explained before that "the long-term goal is to broaden the tax base and to lower the tax rate". This has been the stated goal of successive finance ministers and it has become popular to speak of tax cheats.
Don't get me wrong, there is indeed outright tax evasion, especially among the self-employed; some of whom are not on the tax rolls.
Nevertheless, persons operating outside the formal economy, who do not file an income tax return or who are not registered for GCT, cannot be taxed. It just cannot happen!
In the past, the Government usually reconciled this problem by taxing 'sin goods' and raising the tax rate on the existing narrow base, which has only brought greater incentive for evasion and avoidance.
Sometime last year, Minister Phillips announced that large entities with sales of up to J$1 billion were not filing tax returns, and many were not paying corporate income tax. We know the minister is being advised with data to which the general public has no access, so we will have to take his word.
However, announcing it does not establish that it is so. For one thing, it's hard to imagine companies with that magnitude of sales not filing returns. Also, where a return is filed, not having a tax liability does not necessarily translate into wrong-doing , does it?
Perhaps now - as was with Germany's World War II secret code machinery, the 'Enigma' - the term 'compliance initiatives' may have an indecipherable coded message. This message may help to convert delinquent taxpayers into voluntary self-assessed subjects, but it is more likely a directive from the ministerial high command down to the tax generals - no doubt putting them under pressure to come up with results.
When the battle axe falls, it will devour the already burdened taxpayers, including the defenceless, financially incompetent sections of the population. The battle strategy is to carry out investigations and audits on compliant taxpayers. Increasing the magnitude of assessments that are currently being done, some of which can only be to create 'shock and awe'.
Tax Administration Jamaica and Customs may need to open loans departments.
The Pitts Act declared to raise more money to pay for the British cost of the Napoleonic wars was described as the 'triple assessment', since its aim was to double, triple or quadruple the rates of tax payable by those few citizens within its scope.
In fact, the act was a failure - raising less than half its target.
With this in mind, one gets a real sense of dÈj‡ vu concerning the matter of tax cheats.
The increase of GCT to 21.5 per cent on imported goods was aimed at rectifying a perceived anomaly between goods imported into the island and the added value expected in output GCT that was not forthcoming.
The plan is now geared towards transfer pricing, and changes are to be made to the regime for withholding tax on interest. Cabinet has approved new transfer-pricing rules which will be used to target intra-company transactions aimed at large corporations and conglomerates. As financial institutions are already required to withhold tax, it is unclear whether 'withholding tax on interest' is aimed at the GOJ global bonds market.
Under existing arrangements, payments of interest are made on these debt securities through the paying agent, which will receive the funds for distribution to the holders without withholding or deduction of Jamaican taxes.
The finance minister will reveal the details of his 'tax compliance' package tomorrow, March 12.
In the meantime, this writer asks the minister to consider the Aesop's Fable concerning a man and his wife who owned a very special goose which laid a golden egg every day and made the couple very rich.
"Just think," said the man's wife, "If we could have all the golden eggs that are inside the goose, we could be richer much faster." Her husband agreed: "We wouldn't have to wait for the goose to lay".
So, they killed the goose and cut her open, only to find that she had no golden eggs inside of her at all.
n Everald Dewar is senior taxation manager at BDO Chartered Accountants in Kingston. firstname.lastname@example.org