Raphael John-Lall

Uni­ver­si­ty of the West In­dies (UWI) Econ­o­mist Dr Vaalmik­ki Ar­joon is crit­i­cis­ing the prac­tice of tax eva­sion as be­ing “un­ac­cept­able” as it hurts the Gov­ern­ment’s abil­i­ty to col­lect much need­ed rev­enue.

Two weeks ago, the TTRA’s Chair­man Nigel Ed­wards told Guardian Me­dia that he is ad­vis­ing tax­pay­ers to get their tax­es in or­der and that the tax col­lec­tion gap could be as high as $15 bil­lion.

Last month, the Board of In­land Rev­enue (BIR) seized the ac­counts of the T&T Ra­dio Net­work (TTRN), the par­ent com­pa­ny of ra­dio sta­tions 96.1 We FM, STAR 94.7 and 107.7 Mu­sic for Life for a re­port­ed $34 mil­lion in un­paid tax­es. The ra­dio net­work is owned by An­tho­ny “Chi­nese Laun­dry” Chow Lin On,

Al­so, Movi­eTowne’s own­er Derek Chin con­firmed to Guardian Me­dia that he owes the BIR $93 mil­lion in un­paid tax­es and penal­ties and that the mat­ter is be­ing ne­go­ti­at­ed with the state.

In an in­ter­view with Sun­day Busi­ness, Ar­joon shared da­ta which shows that the state’s main source of tax rev­enue is tax­es on in­come and prof­its, which to­talled $142 bil­lion in the last six years or 68 per cent of to­tal tax­es.

“Tax eva­sion and avoid­ance prac­tices are whol­ly un­ac­cept­able. It cre­ates a loss in fis­cal rev­enues which strains state fi­nances, giv­en that tax­es ac­count for the bulk of gov­ern­ment rev­enues need­ed to fund es­sen­tial ser­vices such as med­ical care, ed­u­ca­tion, so­cial ser­vices, trans­porta­tion in­fra­struc­ture, etc. A loss of tax rev­enue col­lec­tion pro­longs fis­cal deficits, which nat­u­ral­ly in­creas­es our debt bur­den and dri­ves fur­ther in­equity,” he said.

Ar­joon added that to com­pen­sate for the lost rev­enues, the Gov­ern­ment can in­crease tax­es, lead­ing to an un­fair tax bur­den on those who are com­pli­ant.

“It al­so cre­ates un­fair com­pe­ti­tion in the pri­vate sec­tor, as it makes it eas­i­er for busi­ness­es that evade tax­es to un­der­cut com­peti­tors who com­ply with tax­es, lead­ing to an un­even play­ing field. At the same time, the state has a re­spon­si­bil­i­ty to en­sure that tax­pay­ers get val­ue for mon­ey when tax­es are paid, in the form of ef­fi­cient pub­lic ser­vices. It can be ar­gued that these ser­vices can be made more ef­fi­cient if the gaps in tax col­lec­tion are sealed.”

On the flip side, Ar­joon said the state al­so has to meet its oblig­a­tions and pay VAT re­funds in a time­ly man­ner.

“The au­thor­i­ties al­so have a re­spon­si­bil­i­ty to pay VAT re­funds in a time­ly man­ner, as those per­sons owed re­funds are com­pli­ant and de­serve fair treat­ment from the state in re­ceiv­ing these re­funds, there­by less­en­ing their cash flow woes. It is there­fore im­por­tant for the tax au­thor­i­ties to en­sure that tax­es are col­lect­ed in a fair, eq­ui­table and ef­fi­cient mat­ter, and all out­stand­ing tax­es with penal­ties are paid. It al­so makes lit­tle sense that a crit­i­cal fo­cus of the state is col­lect­ing over­due tax­es, but when they get these tax rev­enues, will it be spent in­ef­fi­cient­ly with­out prop­er au­dit trails and ac­count­abil­i­ty in a man­ner con­sis­tent with the dis­crep­an­cies high­light­ed in the re­cent au­di­tor gen­er­al’s re­port?”

He al­so crit­i­cised the BIR for not go­ing af­ter delin­quent busi­nes­sown­ers ear­ly enough.

“The ac­tion, where two busi­ness­men are be­ing called up­on to pay out­stand­ing tax­es, is be­ing tak­en by the BIR and not the TTRA, as the TTRA is not op­er­a­tional yet. Ide­al­ly, how­ev­er, this ac­tion to col­lect these delin­quent tax­es should have been done years ago. Why the de­lay?

Con­fi­den­tial­i­ty

Ar­joon al­so ques­tioned how tax in­for­ma­tion, which is sup­posed to be strict­ly con­fi­den­tial, per­tain­ing to the two busi­ness­men, was so ex­posed for pub­lic scruti­ny.

“While tax eva­sion and avoid­ance are in­tol­er­a­ble, fi­nan­cial in­for­ma­tion on the pri­vate sec­tor ought to be kept out of the pub­lic do­main and any in­for­ma­tion leak­age car­ries a huge risk of un­der­min­ing the con­fi­dence and trust in the tax­a­tion sys­tem. By all means go af­ter those delin­quent tax­es, but at the same time be care­ful with pri­vate fi­nan­cial in­for­ma­tion,” said Ar­joon.

He warned the au­thor­i­ties about the way in which they go af­ter busi­ness own­ers who have not paid tax­es and en­cour­aged them to pro­tect peo­ple’s pri­vate in­for­ma­tion.

“Fur­ther, BIR typ­i­cal­ly takes ac­tion on delin­quent tax­pay­ers, this is noth­ing new, but the names and fi­nan­cial in­for­ma­tion es­pe­cial­ly the tax­es owed are nev­er made pub­lic. Af­ter all, di­vulging pri­vate tax in­for­ma­tion doesn’t al­ter the oblig­a­tion to pay out­stand­ing tax­es with penal­ties. Will oth­ers be pub­licly sin­gled out in the fu­ture? Is there a risk that oth­er tax in­for­ma­tion, such as tax­es al­ready paid with cor­re­spond­ing names, al­so be leaked even if these per­sons are up-to-date with their tax­es?”

Ar­joon added that this per­cep­tion could very well de­vel­op in the minds of the pri­vate sec­tor, break­ing down con­fi­dence in the tax sys­tem and fur­ther giv­ing an im­pres­sion that this might be a sign of how the forth­com­ing TTRA may op­er­ate, how­ev­er false that may be.

“If tax in­for­ma­tion, whether paid or out­stand­ing, falls in­to the wrong hands, it could re­veal an in­di­vid­ual’s or en­ti­ty’s fi­nan­cial sta­tus, such as sales rev­enue and prof­itabil­i­ty, mak­ing them tar­gets for crim­i­nal ac­tiv­i­ty. As a re­spon­si­ble statu­to­ry au­thor­i­ty, the BIR has to pro­tect the in­tegri­ty of the tax sys­tem by safe­guard­ing pri­vate fi­nan­cial in­for­ma­tion, while al­so en­sur­ing that tax­es are col­lect­ed in a fair, eq­ui­table and ef­fi­cient man­ner, and all out­stand­ing tax­es with in­ter­est are paid,” said Ar­joon.

Fi­nal­ly, the econ­o­mist said for greater tax com­pli­ance, the tax au­thor­i­ties ought to be ad­e­quate­ly staffed to con­duct quick and time­ly field au­dits to de­tect those who do not file ac­cu­rate de­c­la­ra­tions and get un­reg­is­tered en­ti­ties in­to the tax sys­tem.

“Due to lim­it­ed staffing, au­dits fo­cus main­ly on larg­er en­ti­ties with high­er over­due tax­es. How­ev­er, more re­sources are need­ed to reg­u­lar­ly au­dit small­er en­ti­ties, as they al­so con­tribute to tax leak­ages. Some au­dits roll over in­to sub­se­quent years, us­ing out­dat­ed in­for­ma­tion. Im­ple­ment­ing an on­line tax fil­ing and pay­ment sys­tem via a sin­gle elec­tron­ic win­dow could en­hance com­pli­ance and time­ly pay­ments.

“The new re­quire­ment to pro­vide a BIR num­ber when im­port­ing al­so has po­ten­tial to en­hance tax com­pli­ance. This should make it sim­pler to cross-check the in­comes re­port­ed with im­port quan­ti­ties, and any re­port­ed dif­fer­ences be­tween de­clared in­comes and im­port val­ues can raise sus­pi­cions of pos­si­ble in­come un­der­re­port­ing and tax fraud. There­fore, it might fa­cil­i­tate faster BIR au­dits, mak­ing it eas­i­er to con­firm the cor­rect­ness of im­port state­ments, spot in­con­sis­ten­cies, and car­ry out com­pli­ance checks,” Ar­joon ar­gued.

Cham­ber’s view

The T&T Cham­ber of In­dus­try and Com­merce re­spond­ed to ques­tions sent by Sun­day Busi­ness on the is­sue of the im­por­tance of busi­ness own­ers pay­ing tax­es.

While the T&T Cham­ber recog­nised that most busi­ness­es own­ers faith­ful­ly pay their tax­es, it com­ment­ed on the con­se­quences of not pay­ing tax­es.

“The pay­ment of tax­es con­tributes to the cash flows that the state needs to meet its fi­nan­cial com­mit­ments. Non-pay­ment of tax­es neg­a­tive­ly af­fects the state’s abil­i­ty to ful­fil these com­mit­ments. The busi­ness com­mu­ni­ty is cur­rent­ly fac­ing sim­i­lar chal­lenges, with many busi­ness­es ex­pe­ri­enc­ing se­vere cash flow is­sues due to sig­nif­i­cant out­stand­ing bal­ances owed by the state in tax re­funds and de­layed pay­ments to sup­pli­ers.”

The T&T Cham­ber al­so ex­plained that many com­pa­nies were hurt dur­ing the pan­dem­ic and this af­fect­ed their abil­i­ty to meet their com­mit­ments.

“We are not privy to the spe­cif­ic is­sues be­tween these com­pa­nies and the Board of In­land Rev­enue and there­fore will not com­ment on them as we are not privy to their ac­counts. We do recog­nise that many com­pa­nies were sig­nif­i­cant­ly im­pact­ed by the pan­dem­ic, af­fect­ing their cash flows and their abil­i­ty to meet li­a­bil­i­ties as they arise. These mat­ters are pri­vate be­tween the com­pa­nies and their stake­hold­ers. The pri­ma­ry goal should be the preser­va­tion of these com­pa­nies so they can con­tin­ue to con­tribute pos­i­tive­ly to the coun­try and pro­vide em­ploy­ment op­por­tu­ni­ties.”

The T&T Cham­ber urged the busi­ness com­mu­ni­ty to up­hold the laws of the land which in­clud­ed pay­ing tax­es.

“The Trinidad and To­ba­go Cham­ber of In­dus­try and Com­merce al­ways ex­pects the busi­ness com­mu­ni­ty to op­er­ate with­in the laws of Trinidad and To­ba­go. Pay­ment of tax­es that are legal­ly due and payable falls with­in this ex­pec­ta­tion.”