Deeper tax reform

The discussion in recent months has been dominated by these questions relating to tax affairs. They are important matters.

And with the Budget due in coming weeks, there will be mounting expectation that Finance Minister Colm Imbert will continue the discussion on the way forward.

Also, the Minister is expected to tell us more about plans for the return of Land and Building Taxes and to also report comprehensively on the efficacy of tax measures introduced such as the widening of VAT and the amnesty which concluded last Friday.

However, while parliamentarians this month continued to exchange volleys on legislation designed to implement a bilateral TT/US tax agreement, experts quietly voiced reservations about deeper, more wanting aspects of the tax regime.

In a pre-Budget article issued on Thursday by accounting firm KPMG, the firm hit the TT Board of Inland Revenue’s inability to pursue tax-dodgers, and urged its reform ahead of its replacement by the TT Revenue Authority (TTRA).

KPMG called on the Government to make clear statements on the efficacy of the current tax amnesty and the recent VAT reduction, and to state their intentions on the Property Tax and a Transfer Pricing Policy for multinationals in TT.

“It will be interesting to see the revenues foregone in the form of penalties and interest as compared to the actual amount collected — especially given the scepticism meted out towards this amnesty with respect to its effectiveness given its frequency in recent years,” said KPMG.

“What should be considered is increased tax audits across all sectors by the Board of Inland Revenue covering years of income, within the statute of limitation, of corporate tax payers who benefited from the ‘boom’ years when oil prices were at their highest.” The firm wanted details of the effects of last February’s cut in the VAT-rate from 15 to 12.5 percent and the expansion of the VAT-base.

“However, many wait with baited breath to see the benefits from these initiatives,” KPMG said. “It is hoped that the Honourable Minister will address the effectiveness of the VAT reduction in the upcoming Budget so as to give the general population some perspective on the Government’s decision.” But beyond these matters, KPMG also touched upon the need for the system to be equitable in how it treats small and larger taxpayers.

Specifically, it flagged the issue of the ability of multi-nationals to select from a buffet their tax options so as to get specific tax breaks and to use artificial transactions and related-party structures to beat the tax man.

So the firm urged the Government to state its plans to plug the loophole posed by this country’s lack of any Transfer Pricing Regime, and noted only the Board of Inland Revenue can invoke the Income Tax Act section 67 to identify artificial transactions.

“The current main Tax Authority does not appear to have a structured means, if any, of treating with businesses that conceal transactions to avoid tax or operate outside the tax system,” KPMG said. “The fact quite bluntly put, is that it is ill equipped to deal with the complexities presented in doing business in today’s world.

Issues of training and expertise will be key in ensuring the success of the TTRA but moreso, there needs to be a shift in culture to one of diligence and excellence.” This is a damning assessment, coming in the wake of the Panama Papers which shook the world to the core by exposing how the rich are advantaged by legal mechanisms not available to small fry taxpayers.

If the State is serious about tax reform, it must do more than just tax the lower to middle classes. It must also address tax avoidance which, while not illegal, is an unfair distortion of our free economy.