The National Assembly yesterday passed a sweeping tax reform bill after amending practice certificate fees for professionals and new taxes on their services but retaining presumptive taxation to tax the self-employed.
The Fiscal Enactments (Amendment) (No.2) Bill 2003 was passed following the presentation of the report by the Special Select Committee to which it was sent on Wednesday. After approximately five hours of debate on the bill on Wednesday, MPs agreed to send it to the select committee with the mandate that it submit a report yesterday for further deliberation by the National Assembly.
Table 1
Table 2
Table 3
Three meetings were held by the select committee chaired by Finance Minister Saisnarine Kowlessar and the report was adopted yesterday by the assembly and the bill read a third time and passed.
One of the key provisions of the bill was a $250,000 fee per annum on a range of professionals comprising accountants, architects, auditors, dentists, engineers, legal practitioners, medical practitioners, optometrists, pharmacists, physiotherapists, surveyors and veterinary surgeons. This new fee - up from the old one of $10,000 - was to be phased in over a three-year period with the full amount payable by 2006.
In the amendment agreed by the select committee the professionals have been broken down into three categories and the practice certificate fees range from $75,000 to $250,000 effective January 1, 2004. (See table 1)
A professional who qualified within three years preceding the date of application for the practice certificate is “permitted to pay the annual fee of $25,000 and shall thereafter be liable to pay the full prescribed fee”.
The bill originally proposed to levy a 10% tax on the gross sum paid in respect of services provided by the professionals listed in table 1 in addition to real estate agents. The select committee report amended this to levy a 5% tax on the value of services provided by dentists, medical practitioners, optometrists, pharmacists and physiotherapists. The 10% tax on the gross value of services provided by the other practitioners remains the same. Concerns were raised during Wednesday’s debate in Parliament over the ability of the tax authorities to collect these service fees.
All of the tax measures catered for in the bill will take effect from September 1, 2003 save for the practice certificate fees which take effect from January 1, 2004.
The select committee report also adjusted the proposed remission of the consumption tax in two circumstances when the import duty is also reduced or remitted. These are the import of a vehicle by a public officer and the purchase of goods used for activities qualifying for tax incentives under the Income Tax (In Aid of Industry) Act. See tables 2 and 3.
Clause 13 of the bill as passed yesterday would allow the minister to utilise a presumptive method of ascertaining the taxable income of self-employed persons who have an annual turnover of less than $10M.
Under the presumptive method, annual taxable income will be fixed by utilising factors such as the size of business premises, number of employees, assets employed in the business, education, training, years in practice and the salaries of comparably employed persons. The method would specify a standard deduction for each category.
Taxes assessed by this method would be payable on the first day of each tax year although regulations may allow the payment of the liability in instalments. Clause 13(6) says regulations may phase in the presumptive tax beginning with select categories of taxpayers and then broadening this.
The presumptive method which had been referred to in this year’s budget speech is intended to address the longstanding concerns that the self-employed are not paying taxes or are vastly under-reporting their earnings.
Clause Six of the bill slaps a 10% tax upon the gross sum paid in respect of services of any hotel which is subject to the Hotel Accommodation Tax Act 1993. The only exception will be gambling activities.
In relation to the 10% tax on the gross value of services provided, a real estate agent is defined as a person “engaged in the business of brokering real property for sale or lease in exchange for commissions on completion of the sale or lease, or otherwise arranging for the matching of buyer and seller or lessor and lessee in a commercial transaction involving real property”.
Clause 3 of the bill removes the broad discretion in granting tax remissions. This wide discretion has been severely criticised. Clause 3(1) says “save as may be expressly provided by any law for the time being in force, no expenditure involving a charge on the revenue shall be incurred; nor shall any sum due to the revenue be remitted, unless the minister is empowered by the specific provisions of the relevant tax act”.
Clause 21 amends the Income Tax (In Aid of Industry) Act to offer exemptions from corporation tax to investors in depressed regions for certain types of business.
The minister may grant an exemption from corporation tax with respect to income if the “activity demonstrably creates new employment” in Region 1 (Barima/Waini), Region 8 (Cuyuni/Mazaruni), Region 9 (Upper Takatu-Upper Essequibo) and Region 10 (Upper Demerara-Upper Berbice).
The activities which could benefit from the corporation tax ease are non-traditional agro-processing (excluding sugar refining, rice milling and chicken farming); information and communications technology (excluding retail and distribution); petroleum exploration, extraction or refining; tourist hotels or eco-tourist hotels. Exemption from such a tax shall not exceed five years though for some businesses it may be as long as 10 years. Tourist hotel means one having at least 30 rooms and eco-tourist hotel means a tourist hotel intended to attract persons who have an interest in the natural environment and wildlife of Guyana.
Clause 5 inserts a new section in the Financial Administration and Audit Act for a standard rate of interest to be charged on late tax payments payable under the Guyana Revenue Authority (GRA). The interest charged will be at the prime lending rate published by the Bank of Guyana plus 500 basis points. The Commissioner-General of the GRA shall specify quarterly by public notice the rate of interest applicable to tax arrears. The existing rates are 45% and 50%.
Clause 18 sets out penalties for persons who fail to pay income tax on or before the due date. Delinquent taxpayers are liable to a penalty of 2% of the unpaid amount for each month or part thereof for the first three months and this goes as high as 5% per month over time.
The FA&AA would be amended by Clause 4 to enable goods imported for a public works project funded by grants or loans from an international agency to have import duty and tax waived.
Clauses 8, 9 and 12 set out exemptions for certain groups from entertainment, departure and travel voucher taxes. In respect of the entertainment tax this applies to functions devoted to religious, educational, scientific and philanthropic causes.
The Income Tax Act would is amended by Clause 14 to apply the minimum turnover tax to self-employed persons in addition to companies under Section 10A of the corporate tax section. Clause 14 says that self-employed individuals whose turnover from the performance of services exceeds the threshold specified in section 28A (1) shall pay a minimum tax equivalent to two percent of annual turnover.
Clause 19 would repeal Section 105 of the Income Tax Act thereby eliminating broad discretionary powers to remit income tax payable.
The bill was read a first time on August 4 and a second time on August 13. The select committee comprised Kowlessar (chairman), ministers Shaik Baksh, Doodnauth Singh, Manzoor Nadir and Leslie Ramsammy for the government and Lance Carberry, Deryck Bernard, Stanley Ming and Volda Lawrence.