Introduction

This piece was intended for publication three weeks ago in advance of the application of the new tax laws.

The Fiscal Enactment (Amendment No 2) Act tabled, passed and assented to all within one month came into effect from September 1 except for the new licence fees payable by practising members of certain designated professions which apply from January 1, 2004. The changes are designed among other things to address tax evasion and contain a number of welcome features. However, the fact that the Guyana Revenue Authority is yet to prescribe a form which professionals must use to submit the monthly statement of tax charged on their service in the preceding month gives credence to the view that the legislation has been rushed and that like so many other provisions of the various tax acts, the Authority is not quite ready to implement and enforce them. Equally importantly, the criticism that there has been little or no prior consultation on the provisions of the legislation let alone on the case and thrust of tax reform sounds more than legitimate.

This Act it seems is just another in the series of piecemeal taxation since 1992 which has witnessed several U-turns and represents a continuing failure by our rulers to appreciate that successful tax reform requires legitimacy born out of the participation of the community as a whole, fully informed about the case for and the wider objectives of tax reforms and contributing to the choice of the best approaches and preferred models of taxation relevant to the country’s circumstances. It is cowardly and improper to blame the IMF notwithstanding the palpable evidence of their invisible hand in this legislation, or to expect the GRA which is not responsible for tax policies but only administration and execution, to sell the legislation.

At a presentation hosted by the Guyana Bar Association after the Act was assented to by Prime Minister Sam Hinds few of the attorneys present other than the representatives of the Guyana Revenue Authority (GRA) had yet seen the Act, and it was clear that even among those who might wish to comply, they simply did not know how to apply the 10% tax on services they charge. Events since then suggest that nothing has changed. This is most unfortunate and it is hard to avoid the conclusion that any consultation with the legal profession on the proposals which were introduced in the National Assembly was any more than obligatory.

IMF

Admittedly, the IMF study from which the proposals were drawn had been around for more than a year and no one can suggest that the legal profession was inadequately represented in the Government, the National Assembly or the Select Committee which made recommendations for amendments to the Bill before it was voted on without dissent in Parliament. It should not escape mention that most of the lawyer MPs conveniently absented themselves from the session at which the Bill was voted, an issue which warrants explanation, or that the PNCR did not call for a vote on the Bill.

But that hardly seems a good reason for the inadequate education programme necessary to enable the professionals to carry out their new responsibilities as collecting agents for the tax to be paid over monthly to the GRA. The original draft of this piece had forlornly asked whether there was any scope for a deferral of this for just one more month in which the GRA will engage all professionals and even assist them with a simple internal system which professionals could apply in collecting the tax on their services. This column also considers that while the increase in the licence is not immediately payable, the period between the passage of the legislation and its effective date offered the opportunity for some consultation with professionals.

Compelling evidence

There is compelling evidence that some but certainly not all professionals and the self-employed have been engaged in massive tax evasion, and there is a view that they have brought this legislation onto themselves. But that is true if you take the position that Peter must pay for Paul and that those who now pay must pay more. Or if you completely exonerate the tax authorities from their duty to exercise their substantial powers under the existing tax laws and which have shown that it is not for want of laws or resources that we cannot collect the taxes lawfully due to the state. The statistics show that it now costs far more to collect a dollar of tax than it did before the highly touted GRA was established, which ought to be a major concern but which is never discussed. The GRA Act is itself not being complied with by the Government in the tabling of the Authority’s annual report which without breaching the secrecy laws could help the public understand the scale of the tax evasion by various groups.

Despite the gross non-compliance by professionals with the requirements of the law - less than one in five of the country’s practising professionals bothered to pay the meagre sum of $10,000 per annum for their practice certificate - some professionals are emboldened to write letters to the press. One letter in particular in the Stabroek News of August 14 by Mr Kamal Ramkarran was intemperate, and did little to enhance society’s respect for the legal profession. Mr Ramkarran seems to have nothing but contempt for “vendors, minibus operators and contractors” and makes some ill-informed comparisons with the legal profession whose members in his view along with other professionals “are ready to take up the challenge of solving the collapse of the judicial system.” Does Mr Ramkarran not know that members of the legal profession had a big hand in the yet un-reversed collapse of the society in the seventies, while the vendors, traders and minibus operators took great risks to keep us from starving?

Economics and equity

Mr Ramkarran would have us believe that many young lawyers find it difficult to “earn in profits” of more than $6,250 per month! There is evidence that many of the country’s newly qualified professionals do not earn the level of income that would allow them to pay the initially proposed substantial sum ($250,000) for an annual licence despite the tax effect of the payment. But one has to ask why our young people continue to flock into a profession which they claim is uneconomic, or why they want to rush to Croal Street when there are so many opportunities open to them in the State and corporate sectors from which they are exempt from the ‘onerous’ fees. Must society believe that they spend a minimum of five years studying to obtain their professional examinations (including all the slogging at university) to earn less than $7,000 per month in profits?

Tax evasion is widespread among all professionals and other self-employed persons (they contribute less than five per cent of the tax revenues of the country) and this column believes that lawyers may be unfairly singled out in this debate. To ask a doctor for a receipt is courting maltreatment, while one medical practitioner I know paid for his sons’ education through medical school abroad while declaring negligible income to the tax authorities in Guyana. In economic terms that education is being financed by the taxpayer, but those very sons will return to continue the cycle. There seems no escaping the maxim that the poor will get poorer while the professionals and their self-employed clients will get richer. The biggest danger in this legislation is that the tax paid by clients and patients will not reach its legal destination and that it will increase rather than reduce tax evasion by professionals while punishing the poor and fuelling inflation.

Mr Ramkarran’s at best hyperbolic statement makes a very unconvincing case for those whose interest he so magnanimously seeks to advocate. Given the exclusive privileges which society has endowed on its professionals, must society not expect them and especially its lawyers to comply with the country’s laws which they helped to frame? Or is it deliberate that Mr Ramkarran places lawyers and other professionals on the same level as the vendors, minibus operators and contractors? And is Mr Ramkarran aware that the legal profession is, among professionals, the group that consumes the largest share of state resources or that every time a lawyer fails to show up in court to defend his client or asks for a postponement because of inadequate preparation, it is taxpayers’ money that is being wasted?

Law school

And while Mr Ramkarran’s “young lawyers, especially those in private practice on their own, sit in their offices waiting for hours and days for clients to come to them,” the government announces the establishment of a law school to produce more unemployed/underemployed lawyers. And does anyone believe that the entire cost will be financed by the students? Why should the sitting ducks of the tax system have to pay taxes properly due by the professionals while the legal profession not only frustrates the system but helps others to do so as well? Since I have to help finance the cost can I ask that arithmetic, recent history, the role of taxation in development, respect for clients and elementary ethics be introduced in the curriculum?

Conclusion

After years of boasting of tax-free budgets (the cynic will say that this did not come out of a budget!) we now embark on sweeping tax changes with the narrowest of focus, little consultation and impugned credibility. The Government cannot leave it to the GRA as it has so far done to do the political work associated with tax reform. Some consultation needs to take place now, notwithstanding the fact that the Act has been assented to. Let us understand that revenue garnering is only one of the functions of the tax system. Can we persuade the professionals and the rest of the country that tax evasion is as much a form of lawlessness as speeding or overloading by the minibus operators or trespassing and littering by the vendors? Or that if we wish a civilised society we must all contribute fairly - equity is not only a legal concept but also a tax one as well.

It is difficult to see the new measures having the desired effect and in particular how the GRA will collect $250,000 when it could not collect $10,000. The Chancellor and the Chief Justice have both said that the widespread non-compliance by lawyers is a problem for the GRA and not the senior administrators of the justice system. If that is not unhelpful, what is?

Would Mr Ramkarran support a Tax Court that was promised by the PPP/C in 1994?