In an affidavit filed on Monday, Minister of Finance, Colm Imbert, made a strong case that further delays in the implementation of the Trinidad and Tobago Revenue Authority (TTRA) would have a negative impact on the future management of the T&T economy.
The affidavit filed by the minister was in relation to the lawsuit by the Public Services Association (PSA) seeking to stop the roll out of the TTRA. The PSA’s position did not find favour with the judges in the High Court or the Court of Appeal.
The PSA, the representative trade union for public servants, is challenging the constitutionality of the legislation that established the TTRA, which is meant to replace the Board of Inland Revenue (BIR) and the Customs and Excise Division.
On Tuesday, the Court of Appeal granted the PSA an interim order staying the implementation and/or operation of section 18 of the TTRA Act, pending an appeal to the Privy Council.
That means the implementation of the TTRA is on hold until at least September 25, 2024.
According to Mr Imbert’s affidavit, in accordance with its strategic plan, the TTRA was scheduled to formally launch by the end of July 2023. He noted that the transfer of officers from BIR and Customs called the option period, would be further delayed until the final determination of the matter by the Privy Council.
Mr Imbert said the Government’s national budget for fiscal 2024 was based on an oil price of US$85.00 per barrel and a natural gas netback price of US$5.00 per MMBtu.
He outlined that oil and gas prices for the first six months of fiscal 2024 have been much lower than the prices on which the budget was based.
“The weighted average price of oil produced in Trinidad and Tobago has fallen below the projected US$85.00 per barrel, to US$81.04 per barrel and the netback price of natural gas has been a mere US$3.22 per MMBtu or 36 per cent below the budget price,” according to Mr Imbert.
He noted that revenue from natural gas is two-thirds of all revenue from petroleum (i.e. oil and gas), so the significant shortfall in the actual price of gas for the first half of fiscal 2024 versus the projected price, was “very serious.”
He said oil and gas production for the first six months of fiscal 2024 have also been 15 per cent and 5 per cent, respectively, below the volumes originally expected for 2024.
“This significant variance from the budgeted figures is a serious cause for concern and makes the speedy operationalisation of the Revenue Authority even more imperative,” according to the Imbert affidavit.
“The fall in oil and gas prices and lower than expected production of oil and gas has had a profound impact on the country’s petroleum revenues, leading to a projected shortfall in revenue for 2024 of $5 billion. When this significant shortfall is added to the initially estimated budget deficit of $5 billion for 2024, even with additional one-off revenues from asset sales, the country’s deficit for 2024 is now expected to be as high as $9 billion.
“The international price for oil and gas is not expected to increase significantly in the near future. Further, Trinidad and Tobago is a mature energy province, having produced oil for over 100 years, and is challenged by natural declines in oil and gas production. In fact, oil production in this country is half of what it was 15 years ago, and gas production is 35 per cent less than what it was 10 years ago. Such production is not expected to improve until 2027, when it is expected that gas from Venezuela should become available to the country.”
Mr Imbert went on to make the point that the next three years will be very challenging for the country from a revenue perspective. This seems to predicate the country’s future revenue on the success of the Government’s engagement with Venezuela, in allowing T&T to access cross-border natural gas and gas from the Dragon gas field, which is close to T&T’s maritime border with Venezuela..
“In fact, unless additional tax revenue can be collected through the improvements in tax administration that will come with a fully operational Revenue Authority, the Government will soon be faced with very difficult choices in terms of maintaining the current levels of subsidies, grants, free services and social programmes,” stated the Imbert affidavit.
This, to me, is the most important sentence in the legal document filed by Minister Imbert in the Court of Appeal on Monday. In effect, he is saying that if the TTRA is not fully operational soon, the Government may have to cut back “the current levels of subsidies, grants, free services and social programmes.”
This statement must be placed in the context of the BIR’s obvious attempt to seek to collect unpaid taxes from businesspeople across this country.
Mr Imbert’s choice of the words “the Government will soon be faced with very difficult choices in terms of maintaining” transfers and subsidies to the population, should also be viewed in the context of his comments before the Standing Finance Committee on Monday on the difficulties of maintaining the Chronic Disease Assistance Programme (CDAP).
In his affidavit, Mr Imbert also said the annual tax gap, that is the difference between actual tax revenue collected by the Government and potential tax revenue, is estimated to be more than $5 billion and could be as high as $10 billion.
“In light of present oil and gas prices on the international market and the likelihood that they will not increase significantly in the near future, the reduction of the tax gap through the increased collection of taxes is likely to be the only way of reducing the budget deficit and achieving fiscal consolidation while at the same time maintaining present levels of Government expenditure,” according to the legal document submitted by Mr Imbert.
Is it accurate for T&T’s Minister of Finance to state that “the reduction of the tax gap through the increased collection of taxes is likely to be the only way of reducing the budget deficit and achieving fiscal consolidation?”
In point 12 of his affidavit, Mr Imbert states, “In accordance with the strategic plan, the Authority aims to retain its tax collection levels in its first year of operation, followed by increases in revenue equivalent to one per cent and three per cent of gross domestic product in the second and third year of its operation, respectively, which would be equivalent to an increase in revenue of approximately $2 billion and $6 billion respectively.”
If Mr Imbert assumed that the TTRA would have been operational by the end of July, he must also have assumed the Authority would “retain its tax collection levels in its first year of operation.” By the minister’s assumption, therefore, the TTRA’s first year of operation would have been for the 2025 fiscal year, which would be from October 1 2024 to September 30, 2025. In that fiscal year, according to the TTRA strategic plan, the Authority did not expect to collect any more revenue than if the BIR and Customs were still in operation
For the 2026 fiscal year, its second year of operation, the expectation is that the TTRA would collect $2 billion. In 2027, its third year of operation, the Authority is expected to collect $6 billion. Given that the annual tax gap “could be as high as $10 billion,” is the TTRA the panacea for T&T’s tax collection issues?
Mr Imbert, as well, made the extremely valuable point that “the Government cannot continue to sustain budget deficits by increasing Government borrowings and Government debt much longer, and international credit rating agencies have warned that if the Government is not able to achieve fiscal consolidation in the near future the country’s international credit rating will be downgraded,” according to Mr Imbert’s affidavit.
There is no dispute that the Government “cannot continue to sustain budget deficits by increasing Government borrowings and Government debt much longer.”
I am totally in favour of fiscal prudence and of “cutting our size to fit our cloth,” as Prime Minister Dr Keith Rowley said in May 2017.
This column supports the implementation of the property tax and the reduction in the fuel subsidy.
But, as Mr Imbert has proven in the past, collecting tax revenue from the population, through the TTRA or otherwise, is NOT the only way to increase revenue.
In 2018, this very same minister implemented the National Investment Fund, which raised $4 billion mainly through the securitisation of the assets of Clico and Clico Investment Bank.
Can we have some more NIFs?
And what about diversification, which should have begun in 2015?