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Govt leaves no stone unturned in tax drive
The Government intends to use the T&T Revenue Authority (TTRA) to go after people and companies who refuse to pay taxes.
According to Minister in the Ministry of Finance, Allyson West, the TTRA is empowered to acquire and utilise information to identify those who are non-compliant.
At a post-budget forum last week, West admitted the government was not collecting taxes from the informal sector due to a lack of enforcement of the relevant legislation.
However, she said the establishment of the TTRA would aid in the capture of uncollected revenue from the informal sector which was conservatively estimated to be between $4 billion to $5 billion in “income tax alone.”
In an exclusive interview with Business and Money, West stressed that while special attention needed to be paid to the informal sector, it was not “monolithic”.
She cited food vendors, doctors, attorneys, insurance professionals, taxi drivers, Carnival band producers, entertainers and sporting athletes as part of the informal economy that continued to thrive, yet failed to remit taxes to the State.
Also forming part of the informal sector are prostitutes, drug dealers and arms/ammunition traffickers.
Asked if and how the government intended to regulate the above named professions, West explained there were are least three categories of taxpayers on the list.
She said the first group consisted of individuals engaged in legal activity that operated under an umbrella body, “but the systems have not been put in place to ensure full tax compliance.”
This, she said, would apply to independent professionals such as doctors and lawyers as well as people in the gaming industry.
The second group is the informal sector where individuals are also engaged in legal activity, but may not be registered either by an umbrella body or with any authority such as the Registrar General, the Board of Inland Revenue (BIR) or the National Insurance Board (NIB).
In this category are: food vendors, small tradesmen, small businesses, etc.
The third group includes individuals engaged in illegal activities.
“The level of regulation of the various sectors determines how easily the BIR can secure information on the various persons engaged in those sectors and as such, the ease with which the tax authority can enforce the tax laws in respect of those individuals.”
She added, “Regulated/registered professionals can be fairly easily identified and located to enable enforcement. However, many of them operate in a cash-based environment that does not easily facilitate the quantification of tax liabilities.”
West added, “The less regulation/registration that exists, ranging from activities of PH drivers to people engaged in hard-core criminal activity, the more difficult the job of the tax authority becomes.”
The minister said the government was aware that significant profits were being made by many engaged in activities listed above.
“Is it right, just and equitable for salary and wage earners and the other compliant people to pay for all the roads, all the health facilities, all the schools, all the police, while others make no significant contributions but demand and receive all the benefits of the tax dollars expended by the government?”
Although the earnings in the informal sector vary according to the profession, West said, “There is the small vendor on the corner barely making a living but you also have the gyro vendors or the fete promoters who are generating significant profit, but not contributing significantly to support the national welfare.”
Illegal activities not beyond taxation
Turning her attention to individuals engaged in illegal activities, West said the authorities first needed to establish a clear framework for the regulation of a sector before they could enforce a tax structure.
“Those involved in illegal activity are not regulated and should and must be prosecuted for the crimes they commit. However, the fact that their activity is illegal does not prevent the tax authority from assessing them, to tax them on the profits of their trade, as happened with Al Capone in the US.”
Pressed to say if the government was positioned to go after the informal sector, West assured, “The objective of taxation is not to drive people out of business, especially if it is a legitimate activity that is helping them feed their families and filling a need.
“The government’s policy towards the informal sector is not just about taxation. It is actually about supporting businesses to make the transition to the formal economy, which is in the interest of most businesses in the informal sector, their employees and their families.”
She said transitioning to the formal economy enabled greater access to social protection and other services that unregistered business would not normally have access to.
“It is also important to understand that administration of taxation costs money. The tax authority will have to weigh the effort and expense to collect taxes from various segments of the informal economy against the potential tax to be collected.”
However, she stressed, “The legislation currently empowers the tax authority to assess and collect tax from anyone earning income which he/she is not declaring.”
“For various reasons this is not happening to the extent that it should and many are falling through the cracks. The Revenue Authority will have the flexibility, agility and resources to address those issues.”
While regulating a sector and taxing a sector are separate issues, government has been working with international agencies such as the International Labour Organisation to address support in transitioning to the formal economy.
West declined to reveal specific plans regarding how the government intended to approach the taxation issue.
However, she claimed there was a wealth of information at the disposal of the tax authority that would allow it to effectively pursue the taxes due by the defaulters in many of those sectors, in a fair and equitable manner.
She said while gathering information on illegal activities was more of a challenge, “options exist to estimate tax liabilities.”
Endorsing the view that the enforcement of tax collection was the problem and not the actual tax, West responded, “As a general rule, the T&T tax system is sound. It does need some tweaking and we propose to hold consultations to discuss the areas that should be addressed. However, the bigger problem by far is enforcement of the existing legislation.”
Referring to the tax gap—the difference between what is actually collected versus what should be collected—Professor Karl Theodore and his associates at the University of the West Indies conducted a preliminary study in which they estimated that it was between 11 to 18 per cent or $12 billion to $15 billion.
West estimated recovery of 68 per cent of that shortfall was in the area of corporate tax which stood at $5.1 billion and $6.6 billion; and VAT which was said to be between $1.9 billion and $2.4 billion.