Mon | Oct 26, 2020

Editorial | Be transparent about write-offs

Published:Thursday | October 1, 2020 | 12:06 AM

IF THERE is a takeaway for the Government from this newspaper’s report on its write-off of at least J$4 billion in taxes owed by firms over the last three years, it is of the value of transparency in good governance. That, obviously, is assuming that there is nothing to hide.

This lesson, judging from his declarations in the past, is not one that anyone should need preach to Dr Nigel Clarke, the finance minister, under whom taxation matters fall and who, in the specific situation, should have been especially sensitive to the virtue of openness. In the circumstances, Dr Clarke must adjust the system of accountability for these transactions. That would help with trust and good faith for actions by public officials.

By the accounting of Tax Administration Jamaica (TAJ), the Government’s revenue collector, 86 companies benefited from these write-offs since 2018, including 19 so far this year. One company, which owed J$1.5 billion, whose name was not released, accounted for 38 per cent of the relief. Another company, which is part of the group of which Dr Clarke was a senior executive before joining the Government in 2018, received a write-off of J$44 million, or one per cent of the total amount.

Transactions such as these are not unusual for governments across the world. Tax agencies write off uncollectable debt and are sometimes forced to retreat when their assessments are challenged. Or, they may settle for lower sums when individuals and firms cannot pay more.

In the case of Jamaica, there has been a seven-year effort, as part of a broader fiscal reform, to clean the Government’s ledgers. A 2013 law allowed the tax authorities to regularly quantify for the finance minister the outstanding taxes and associated penalties that were deemed uncollectable. These, having been gazetted, “shall hereafter no longer be included in any projection of the specified sum” on the books for subsequent collection.

At the time of the legislation, the tax authorities had over J$230 billion in more than 70,000 accounts on their books. Eighty-five per cent (J$195 billion) was outstanding for more than three years, and only J$4 billion, or less than two per cent, was outstanding for six months or less.

Gazetting, however, does not automatically end the efforts by the TAJ to collect the monies, which apparently has been attempted in many cases. Further, the determination on what is uncollectable was removed from the sole control of the minister with the insistence of the analytical input and recommendation of the tax authorities.

Opaque System

While the three-year write-off, amounting to less than half of one per cent of this year’s Budget, does not, on the face of it, seem excessive, the system is nonetheless opaque. The Gazette, the Government’s information sheet, is without set publication dates. It is hardly the country’s most accessible or easily available bulletin. And in several instances, such as the case with the J1.5-billion write-off, gazetted companies are cryptically identified – only by letters, which may not correspond with their names. Further, there is no explanation of the reasons for the write-offs.

This is good for neither the Government nor the companies involved. It breeds suspicion and erodes public trust.  It breeds suspicion and erodes public trust. Indeed, the cost of collecting a debt may be higher than the amount deemed to be outstanding, or a company may have long shuttered and its directors cannot be found. Or, perhaps, the TAJ was wrong about the value of a debt and had to adjust.

Our suggestion to Minister Clarke is rather than merely acknowledging write-offs in the unfathomable dungeon of the Gazette, the law should be adjusted to require the reporting of why a write-off was agreed to. Additionally, as used to be the case with tax waivers up to the mid-2000s, a monthly register of these write-offs should also be published on the finance ministry’s website. The present system, with its opaqueness, is, we suspect, aimed in part at preventing the embarrassment of beneficiaries of the arrangement. That is a conceptually bad premise on which to start. For, it causes people to assume that something was being hidden when the information eventually comes to light.  In any event, this information is pertinent to fiscal analysis and to the operation of our businesses. It should be readily available to everyone, including taxpayers or anyone curious about business in Jamaica.