Delroy Warmington | Pay your taxes or go to jail
This is the ultimatum the Government should give the tax evaders. For too long, these culprits have been given a free ride, causing massive revenue leakage, thus depriving the Government of its entitled taxes.
The main reason why we have this situation is because they can get away with not paying. On the few occasions they are caught, the fines are so minuscule that they regard it as a cost of doing business. When was the last time we have had anyone going to jail for cheating the tax system? Tax evasion should rightly be treated as a criminal, rather than civil, offence. Tax evasion has caused a vortex-shaped hole in the Jamaican economy.
Jamaica is afflicted by the Holy Trinity of crime, corruption, and tax evasion, resulting in a complicated melange. Of these three, tax evasion seems the easiest to address.
It is hard to believe that the Government is manifestly incapable of fixing its tax revenue deficiency. It needs to take the profusion of investigations into the tax evasion juggernaut.
Putting cheaters in prison on long sentences and extracting gigantic fines will surely get their attention, while serving as a major deterrent.
It is time for the Government to embark, with missionary zeal, on a campaign to correct this glaring economic distortion. This destructive behaviour must be addressed. No longer should paying tax be optional. It must be mandatory. For too long, the Establishment has been in a state of denial as to the corrosive effect of tax evasion.
Cheaters see the Government - no matter the administration - as weak and decadent. Their conscience is in a state of slumber. They think they are imbued with a divine sense of entitlement. It seems as if there are some pernicious forces at work that stimulate the Government's obdurate stand.
In no way can the Government be inordinately proud of its tax revenue. This unfretted tax evasion must be stopped. It is time for the Government to stop relying on utopian rhetoric and engage in enlightening thinking to deal with these unpatriotic companies and individuals. We cannot afford the perception of official apathy.
Tax revenue, as a percentage of GDP, is currently at 26 per cent. This could easily go to the mid-30s without any increase in taxes. The Government just needs to be more aggressive in collecting taxes. You are looking at, at least another US$500 million per year to the treasury. This could go a long way in reducing the deficit, decreasing borrowing, while giving the State the needed ammunition to increase its investment in the economy. There would be less reliance on foreign investments.
Collect at customs
Take the massive non-compliance with GCT. On too many occasions, taxes are collected but never repatriated to the Treasury. One way of fixing this is to collect the GCT at Customs. This way, the Government would not have to wait until the goods are sold before getting its remittance. They should have a fairly good idea how much these items are sold for. A six-month window should be given to resolve any discrepancy in the selling price.
All invoices over J$10,000 should be electronic. Therefore, traceable transactions would produce a most reliable audit trail. The problem of underinvoicing for imports and the overinvoicing for exports would be drastically reduced, if not eliminated.
Deploying technology such as blockchain will make a significant difference in enhancing tax compliance. Here, you will have consistency, and the ledger cannot be manipulated. The use of phoney receipts and invoices would no longer be in vogue.
There is need for in-depth analysis of shell companies and secret offshore accounts. The Government should know the assets held abroad by both individuals and Jamaican companies. It does not mean that all shell companies and offshore accounts are used for tax evasion.
Does the Government know what percentage of Jamaican wealth is being held abroad? Has anyone ever conducted a forensic analysis of the all-inclusive hotels' books? Are they paying their fair share of taxes, or are they getting a free ride? Look at profit held overseas and the shifting of these profits among jurisdictions.
It is time for the Government to start challenging some of these financial reports. In many cases, expenses may be overstated while profit is under-reported. Look at the abuse of tax incentives. There is also non-reporting and capital flight, which must be addressed.
Then there are the proceeds from corruption. There is massive tax evasion here. And in many cases, these proceeds are used to support crime. Remember that the tax man was the main instrument used in bringing down the most notorious Al Capone and John Gotti. It is time we use the tax system in Jamaica to this effect.
It is estimated that globally, more than 40 per cent of multinationals' profit is shifted to tax havens. Then there is transfer pricing, especially on intangibles, which, in many cases, is used to avoid and evade taxes. Jamaica must better utilise the OECD/UNDP Tax Inspectors Without Borders system. Also, the OECD/G20 Base Erosion and Profit Shifting offers Jamaica an ideal tool to alleviate its tax evasion situation.
Jamaica's task is made much easier with the advent of the changes in the Swiss bank secrecy law, Panama Papers, Swiss leaks, Paradise Papers, and offshore leaks. These are good places to start. Then there are the British Crown dependencies and overseas territories that facilitate tax avoidance and evasion.
We must coalesce around an inclusive narrative. Jamaica should strive to become an egalitarian society where everyone pays his fair share of taxes.
- Delroy Warmington is a global fund manager.