Despite the brouhaha caused by the recent tax changes arising out of the recommendations of the International Monetary Fund, it is a safe bet that the country’s trade unionists are as unaware of the recommendations of the study in terms of personal income taxes as the professionals were about those affecting them.

It is true that the government has demonstrated over-enthusiasm when it comes to the implementation of the recommendations of that study, far exceeding the IMF’s recommendations. It is true also that the bankers were taken by complete surprise by the manner in which the changes affecting them were introduced. But this hardly explains the silence of the trade unionists to engage the government in some discussions on the study which will have far-reaching implications on the direct and indirect taxes to be borne by workers and their standard- of- living.

No voice, no view

This article does not in any way seek to exonerate the government of their duty to have consulted more widely and acted more honourably on the Report. For example, the change affecting the bankers was not included in the Bill published in the Official Gazette but was included at the Committee stage with the concurrence of the PNCR which meant that the bankers would have seen it only after it had been passed into law.

Of course, it leaves one to speculate whether the bankers after spending several hours on a draft press statement criticising the change should have allowed one bank to veto its issue. Is it that any of them had so abused the ‘loophole’ in the law that they felt they had lost the moral authority to speak?

The $250,000 charge on professionals (later reduced for newly qualified professionals) was not a recommendation of the Report. Nor was the service tax of 10% (subsequently reduced to 5% for some categories of professionals).

The IMF recommended a 5% withholding tax on payments to government contractors and providers of professional services, which would have been creditable against their income tax liability and which would not have increased the cost to the recipient of the service.

Instead, the government doubled the rate to 10%, ignored the recommended set-off, thereby increasing the tax on the amount paid by the consumer. At the same time it ignored the recommendation with respect to payments to its contractors, adding fuel to the criticism that it has often treated its contractors as privileged persons.

In none of its press statements or television interviews did the government indicate the revenue implications - let alone the economic and social ones - from the new tax measures, a requirement which the current crop of government professionals would find obviously desirable. The pensioner and the unemployed who can hardly afford the consultation fee of the physician must now pay more but since they have no voice they are assumed to have no views. The muted concerns of the professionals have not been about the service tax which they can pass on, but about the fee for their practice certificate which they are required to have in order to practice.

A government which for several years had taken great pride in not introducing any new taxes is suddenly exceeding the IMF’s recommendations and one has to wonder whether this is a realisation that the erosion of the fiscal balance which appeared in the early years of the Economic Recovery Programme needs to be halted or it is simply a tax-and-spend approach to financial management.

Trade Unions

The position of the trade unionists is however quite different. Having seen the lack of consultation on the Report by the government and the consequences which it has had on professionals and bankers, should they not take the initiative to engage the government on the Report?

It is unlikely that they would have been impressed by the little attention paid to the personal income tax (PIT) system with the only recommendation being the increase of the annual personal allowance in stages to $300,000 in 2005 and an increase in the marginal tax rate to 35%.

This suggests either that the IMF consultants were able to determine after their two-week study that the PIT is not broken and does not need fixing, or that the existing system is producing the kind of revenue which should make everyone but the taxpayer happy and should be left alone regardless of any weaknesses.

The difficulty for the movement is that like the rest of the country it suffers from political divisions, has not been an active participant in the formulation of national policies, suffers from a shortage of quality leadership and even among its members it is seen as increasingly marginal.

Current General Secretary Lincoln Lewis is a long way from establishing the authority and credibility of his predecessor the late General Secretary Joseph Pollydore, while the current low-profile style of the President seems out of place when the rights of workers in a changing society have to be established.

Allowances & benefits in kind - the inequity!

The contribution to revenues by the major groups of taxpayers is instructive and seems to defy all the empirical evidence which would suggest a somewhat different pattern.

Perhaps for the first time since taxes were introduced in Guyana in 1929, companies now contribute less to the national coffers than employed persons! This development should interest and impress the leadership of the trade union movement. This surely warrants investigation and analysis and an explanation by the Guyana Revenue Authority as well as the Ministry of Finance, not only for public consumption but equally important for policy formulation as well. And there are other anomalies as well.

One of the seldom-discussed elements of the personal tax system is that it has its own form of remission - a major concern with the corporate and indirect taxes.

A little-discussed provision in the Income Tax Act provides for the exemption from tax of ‘any emoluments payable under any incentive scheme approved by the Minister’.

Perhaps it is co-incidental that sugar and bauxite are the major beneficiaries of this exemption, though it is believed that some private sector companies also benefit.

According to the Stabroek Business Supplement, sugar workers received 23.5 days annual production incentive and 173 days tax-free pay as incentives in 2002, and in the bauxite industry overtime has long been tax-free.

It is time to review the schemes which have been approved to determine whether this continued subsidy can be justified on equity and economic grounds. Is one category of worker more valuable than another and should this be addressed by the tax system or be reflected in the pay rates?

And should these not be reviewed annually?

The law also shows extreme favouritism to higher- paid employees. It allows them valuable benefits such as expensive vehicles and drivers, travelling-allowances, passage-assistance to travel abroad, security etc. to be non-taxable.

On the other hand, a small allowance to assist the employee to meet the prohibitive cost of getting to work and back is taxable. If the Government is serious about widening the tax base, it must address the issue of allowances and benefits making certain allowances, perquisites and other forms of income taxable.

Fair rate of tax

What is a fair rate and structure of the personal tax system is often a matter of considerable debate. International comparisons tend not to be very helpful since cost-of-living, relief and allowances, the level of public goods and the overall tax burden are relevant.

The Budget of 1993 saw Guyana moving to a single- rate flat tax of 33&1/3% perhaps influenced by its popularity in some developed countries and its obvious administrative simplicity. The IMF now says this should be increased even if only marginally.

Let us hope the Government will ignore this recommendation and do what it has not done so far and that is undertake serious reform of the personal-tax system.

A flat-rate tax rate must inevitably be set at a reasonably high figure to collect the same or increased revenue and this can adversely affect the attractiveness of employment income.

For this reason, a single tax rate which is essentially what we have is questionable since it has been found to lead to contraction in the level of employment. A reduction in the effective tax rate and progressivity in the direct tax structure should be considered.

Business Page is not optimistic that the Government would accept any recommendations from the TUC, but this does not mean that the leadership must not try. The so-called incentive schemes must be subject to rigorous conditions if they should be paid at all.

Perhaps the GRA can begin by publicising the schemes currently enjoying this exemption. Before we take that final step towards VAT let us make sure the path is not encumbered with too many anomalies and confusing signals.