Sun | Sep 26, 2021

TAX TELL-ALL - Gov’t to reveal identities of undisclosed beneficiaries of Phillips era $250b write-off

Published:Sunday | October 4, 2020 | 12:16 AMJovan Johnson - Senior Staff Reporter
Finance Minister Dr Nigel Clarke says he intends to make the system of tax write-offs more transparent.
Finance Minister Dr Nigel Clarke says he intends to make the system of tax write-offs more transparent.
Peter Phillips
Peter Phillips

The Government is to lift the veil of secrecy and publish the names of at least 30,000 taxpayers who received almost $250 billion in tax write-offs between 2014 and 2015, in a stunning development in an ongoing Sunday Gleaner probe.

Finance and the Public Service Minister Dr Nigel Clarke was not in charge of the treasury at the time when the decision was taken to write off the mammoth sums as uncollectible without telling Jamaicans exactly who benefited. But he argued in an opinion piece published in today’s Sunday Gleaner that the situation could raise serious questions about transparency with so much money cleared under a low-keyed “broad-brush” policy.

Clarke’s article and pledged course of action are in response to this newspaper’s report last week about 86 companies benefiting since 2018 from $4 billion in corporate income tax arrears being wiped away.

In 2013, when the International Monetary Fund forced Jamaica to put in place legislation to govern tax write-offs, and remove ministerial discretion, a new requirement was for the minister of finance to publish the details in the Jamaica Gazette, the State’s newspaper.

For the first two years – 2014 and 2015 – the $250 billion cleared was reported across seven Gazette publications, which only stated that the figures were uncollectible and related to public bodies or taxpayers as the sole clues as to who benefited.

Since then, more gazettes have been published, but not all the names of companies and individuals that benefitted from tax relief have been released.

“Many will see this as a shortcoming,” Clarke said, admitting “there is a legitimate public interest in this information being available”, given the size of the money involved.

But, “we will address this shortcoming,” the minister said without outlining a timeline.

Clarke said “as soon as practicable”, the tax commissioner will publish the disaggregated information available on broad-brush taxpayer write-offs from 2014.

This will be done in hard copies and made available at the Tax Administration Jamaica (TAJ), the Ministry of Finance and on their websites.

The broad-brush policy emerged as the means through which the Government could get rid of old tax arrears owed by private entities and individuals up to December 31, 2010, and up to December 31, 2012.

However, Clarke did not respond to a Sunday Gleaner request for a specific explanation of his role as finance minister in the 2019 write-off for the Facey Commodity Company, a member of the Facey Group he headed as CEO between 2009 and 2013.

The company was cleared of $44 million in interest as part of the broad brush policy.

Brute-force approach necessary

Amendments to the Tax Collection Act in 2013 empower the tax commissioner to recommend write-offs once cases fit any number of circumstances outlined in the regulations.

That would require an individual assessment of each taxpayer.

However, the problem of uncollectible tax arrears “was so acutely, densely and intractably complicated”, Clarke said, a case-by-case approach was “insufficient to resolve the problem”.

“A brute-force approach was also necessary,” the finance minister revealed, saying the policy was formally named ‘broad brush’.

In 2011, the TAJ had $230 billion in old debts, a figure that ballooned to $408 billion two years later, and which related to 145,271 taxpayer accounts.

The arrears stock now stands at $159 billion, 60 per cent of which are interest and penalties.

Applying brute force meant that the tax commissioner could opt for the cut-off-date provision.

The full details were expected to be published but that was not done.

“Totals were published in the Gazette but neither government nor non-government taxpayers were itemised as it was deemed impractical to do so. Listing each broad-brush taxpayer arrears write-off would easily exhaust 10,000 pages,” Clarke explained.

Although the relevant gazettes have been difficult to locate, The Sunday Gleaner has managed to obtain four of the seven publications relating to the period under question.

One published on May 15, 2015 indicated that $68 billion was cleared for public bodies.

Less than a month later, $99 billion in arrears were written off for “taxpayers other than public bodies”.

Large taxpayers – private entities with annual sales in excess of $1 billion or public bodies with high PAYE contributions – benefited from a write-off of $30 billion based on a publication in December 2014.

Up to 2010, a large taxpayer was classified as one with revenue in excess of $500 million.

A further $25 billion was cleared 2014 in relation to “taxpayers other than public bodies”.

“That tells you is that many of the entities are not just big businesses, but some of the ‘everyday man’ and small businesses benefitted,” said a high-ranking official in the Government.

“It’s puzzling why something like that happened,” the official said, reacting to the news that most broad-brush beneficiaries were never revealed to the public. “It makes you wonder.”

Phillips backs decision to reveal beneficiaries

Churches, schools, non-governmental organisations, and some of the biggest corporate players are reportedly among the private entities that received write-offs.

Some of the arrears built up were linked to problems with the revenue collector’s old International Computer Tax Accounting System, which created reconciliation problems when a new system was implemented, the tax commissioner, Ainsley Powell, explained.

“Prior to 2010, payments made by taxpayers were sometimes inaccurately allocated to the wrong period(s) resulting in erroneous liabilities. Balances transferred from the old paper ledgers sometimes did not reflect the correct balances for periods as the ledgers had missing returns amounts such as credits or refunded amounts,” he said.

TAJ also needed to clear its books of arrears that could not be collected for reasons including that persons being out of business, businesses closed, deceased taxpayers or persons migrated.

“The broad-brush write-off was intended to remedy all those issues and create a new slate going forward,” the commissioner argued.

Clarke also explained that a large stock of tax arrears resulted in an overestimation of revenue forecasts and overcommitment in expenditure leading to debt accumulation.

Asked why the broad-brush write-offs were not itemised, Dr Peter Phillips, who was finance minister from 2012 to 2016, said he could not recall making a decision on what was published.

“I remember that the general principle was that debt that was not collectible and had not been collected going up to 10 years in some instances, seven years in others, that we decided that the TAJ should have the authority to determine that a debt was uncollectible, to write off and that it would be gazetted,” he told The Sunday Gleaner.

“The whole thing would have been recommendations coming from TAJ. The power rested with TAJ. The minister only had the power to say yes or no … . I don’t recall ever taking a decision on the publication.”

Phillips said he supports the decision of the Holness administration to publish the details of each taxpayer that benefited from broad-brush write-offs.

“I think the fullest amount of transparency in the matter would benefit the public.”

In a previous response to The Sunday Gleaner, Clarke admitted that the tax-write off system needed to be “more transparent” and the administration would “immediately” start making changes.

“I will direct that where an order is published in The Gazette on the tax write-off determinations made by the commissioner general. We will upload that issue of The Gazette to the ministry’s website within 30 days of it being printed,” he said.

The Gazette does not state precisely why each company gets a write-off, merely noting that the tax boss has determined the sums to be cleared as “uncollectible”.

On that, Clarke said the finance ministry would examine “whether the write-offs can be categorised by the specific criteria in the regulations on which the commissioner general made the write-off determination”.

FINSAC buyer gets $1.5b tax write-off

The Jamaica Redevelopment Foundation (JRF) is the entity reported on last week as benefiting in 2018 from a tax write-off of $1.5 billion.

The name could not be ascertained from a search of available public records.

Finance Minister Dr Nigel Clarke revealed the entity following a request by The Sunday Gleaner.

The JRF is a debt-collection agency that acquired the largest portfolio of distressed debt held by the Financial Sector Adjustment Company (FINSAC) and sold by the Jamaican Government as part of the reconstruction of the financial sector two decades ago.

Clarke said the amount was written off under the broad-brush policy, which allowed the tax commissioner to recommend the clearing of debts accumulated up to Dec 31, 2010 for non-government entities.

Taxpayer: Jamaica Redevelopment Foundation, Inc.

Tax relating to periods: 2003, 2004, 2005,2006,2010. (97% related to 2003- 2006)

Original tax over those years: $386,840,506

Interest: $1,121,670,279.65

Total: $1,490,510,785.65