The Non-Bank Cambios and the Private Sector
Business Page
Introduction Chairman of the Private Sector Commission Mr. George Jardim was forced to clarify statements attributed to him in the press concerning illegal money. The case of Mr. Jardim whose skill and commitment to Guyana are exemplary provides another example of a phenomenon in Guyana which Andaiye referred to a few weeks ago: any public statement made is dissected for partisanship and then race to which it seems we must add yet another: if you did not speak out on earlier wrongs you have no moral authority to address later ones. This raises two immediate issues: it disqualifies most Guyanese from ever speaking up and seems to suggest that morality must somehow be treated as a relative concept. If we are to develop as a nation we need to concentrate on our future, not on our past. How many Guyanese fearing to offend did not keep silent during the gold scam? And how many are prepared to raise their voices on the crime on the nation carried on through tax evasion? The debate however should change focus rather then end with Mr. Jardim's clarification. The issue we should be addressing in a pro-active manner is that covering policies of the financial sector of which the Cambios are a part.
The Cambios There has been no publicly available study on the operations and contribution of the non-Bank Cambios which has heightened speculation about them. Since 1991 a large number of Cambios were opened throughout the country whilst a few have closed voluntary. By definition, the mere act of registration provided a legal cover but might not have addressed some of their other deficiencies. What the non-bank Cambios have done is provide competition, sometimes unfair, to the Commercial Banks. They have to a large extent prevented the domination of the market in foreign currency by the few commercial banks. Notwithstanding this however, there is a widely held belief that the Cambios have outlived their usefulness and indeed there are few Guyanese who believe that all the licensed non-Bank Cambios comply fully with the law. At this stage it hardly seems justifiable for the large number of Cambios given the increase in the number of commercial banks and branches in the country.
Money Laundering There will always be leakages in any system, particularly in a country still coming to grips with economic adjustment, but there are far too many loopholes in the system facilitated by institutions like the non-bank Cambios. The Central Bank has been strengthened to exercise greater monitoring, supervision and authority over the financial sector. Yet there is little evidence that it has been dealing decisively with departures from the law, insisting on prompt, accurate and audited reports and tax compliance certificates before agreeing or extending licenses for the non-bank Cambios.
Re-structuring We must decisively address the reform of our tax system. For too long Guyana has been toying with the idea of Value Added Tax (VAT). Except perhaps in heaven no tax system or tax administrator has managed to eliminate tax evasion. VAT does have its own problems of administration but empirical evidence suggests that it is far more efficient than income tax. It provides an incentive for business to keep records,, replaces a whole lot of other taxes and produces much higher revenues which facilitates the reduction in the rates of taxes on income. The liberalisation of the economy has brought about its own type of problems of inequity. There is a correlation between crime and the revenues available to the Government. Policies and measures must recognise this reality.
NIS Increases The increase will cost both employees and employers. For persons who earn $60,000 monthly the immediate monthly increase in contribution is $672 for the employee and $1008 for the employer. From January 1, 2000 persons who earn $76,000 per month will have to pay an additional $768 per month whilst the employer pays an additional $1152 per month. The Scheme has successfully adopted a conservative actuarial policy, which links pensions and contributions to the Government minimum wage. The increase in the pensions will obviously be welcome by pensioners but employed persons and their employers will probably see this as a response to the award of the Wages Tribunal on pay for public servants. NIS for employers is a form of payroll tax and employers usually try to minimise or avoid this liability by various means including reduction of the numbers on their payroll. Employers contribution are deductible for tax purposes but since employees no longer get any form of allowance or deduction they will have to bear the full cost of the increase in the employees contribution.
Re-allocating the Contribution? After struggling to recover from the effects of the public sector strike earlier this year the increase contribution on employers will no doubt disappoint them putting further pressure on their budget. With a Wages Policy likely to be instituted in the public sector and wages agreed for longer than one year perhaps we could hopefully look forward to fewer surprises in NIS contributions in the future.
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