The absence of a well constituted T&T Revenue Authority (TTRA) is giving tax cheats the power to fuel a local shadow economy, former government Minister Christine Sahadeo told the Sunday Guardian.
Sahadeo, a senior lecturer and deputy dean for planning and programming at the University of the West Indies, St Augustine, said there is major leakage in the revenue collection system which the Board of Inland Revenue (BIR) and Customs and Excise Division are not equipped to handle. As a result, millions of dollars needed for the funding of critical development caused by some registered businesses understating profits to deceive the authorities, while unregistered ones simply operate under the corporate tax radar.
“In most countries, tax revenue foregone as a result of the shadow economy or leakage represents a very significant component of the total gap—the difference between actual and potential tax revenues,” Sahadeo explained. “Although the terms leakage and shadow economy are used interchangeably, I prefer to refer to leakage as where registered businesses conceal transactions to avoid paying taxes and the shadow economy to describe a situation where businesses operate outside the tax system.
“The size of the shadow economy is difficult to measure. It is incumbent on revenue agencies to implement measures to manage the loss of revenues from the shadow economy.”
Sahadeo said reducing the shadow economy requires implementation of proper controls and systems, particularly integrated information systems with their own checks and balances. She believes introduction of the T&T Revenue Authority, a plan that was shelved when the People’s National Movement lost the 2010 general election, should be part of the solution. She said the TTRA could play a vital role in building the resilience in the country’s tax administration.
“Over the last four years, T&T has presented deficits budgets. With escalating recurrent expenditure and reduced tax revenues it is even more critical that tax policy and institutional arrangements optimise collection of tax revenues.
“A tax policy should aim to raise sufficient revenue for the funding of public services and macro-economic stability; control compliance and administration costs; achieve a fair burden between taxpayers; encourage enterprise and productive economic activity; and promote efficiency by addressing market failures,” she said.
Sahadeo added: “The TTRA Management Company Limited and a board and chairman were appointed in 2009. The model planned to adopt best practices of revenue authorities in other countries. As evidenced by international experiences the TTRA would be a catalyst for reform and would promote and foster an improved business environment in T&T, based on transparent performance management and reporting systems.
“The overarching goals of the TTRA were to increase the efficiency of revenue collection, voluntary compliance among all taxpayer groups and introduction of integrated management information systems. These measures were designed to ensure a highly visible and credible detection and enforcement capability thereby reducing the incidence of leakage.”
While the push for the TTRA was close to being realised in 2010, the idea to set up such an agency came about 17 years earlier during Patrick Manning’s first term as prime minister. The aim was to tackle “inherent problems and weaknesses” in the BIR and Customs and Excise. Technical assistance was sought from the United States Internal Revenue Service between 1997 and 1998 when a visiting team was assigned to the BIR to assist with its restructuring this revenue arm of the state.
In 2002, government appointed a committee to investigate the feasibility of establishing a Revenue Authority.
Sahadeo recalled: “The committee identified 13 deficiencies in the existing institutional framework. The first five of these deficiencies related to issues in human resource management. There did not exist an overarching modern policy on human resource management for the public service. Vacancies are not filled, not because of lack of qualified personnel, but rather the unacceptably low salaries offered. Promotions are based on seniority rather than performance and inefficiencies in the reward system do not support a modern performance management system.”
The BIR and Customs and Excise, which fall under the Ministry of Finance, are governed by the rules and regulations of the public service. Sahadeo admitted that transformation of such an agency was both large and complex. “The Government cannot sit idly by and wait. Reform of the civil service must be considered with regard to the intention of the legislation of T&T, which was to insulate the members of the civil service from political influence exercised directly on them by the Government in power.
“The Public Service Commission has the autonomy to make appointments, promotions and transfers within the service. It also has the power to remove and exercise disciplinary control over its members. However, this model contravenes modern concepts of human resource management,” she said.
TTRA plans ended with 2010 election
Plans for a T&T Revenue Authority (TTRA) were developed by the Patrick Manning administration. The proposed agency was intended to reform and modernise revenue administration in a single unit, effectively removing those functions from the civil service and establishing a management board for oversight and accountability facilitating the introduction of more modern human resources and other administrative practices.
The TTRA was carry out all the functions currently done the Board of Inland Revenue (BIR) and the Customs and Excise Department, both of which would have ceased to exist. It was to have the mandate to assess and collect taxes and duties as well as administer and enforce the revenue laws. The merger of the BIR and Customs and Excise was also expected to be a catalyst to promote and foster improved business environment based on management transparency and a visible integrity programme.
In March 2009 , the Manning administration announced plans to allocate between $300 to $350 million to fund the TTRA. However, the plan was criticised by the Public Services Association (PSA), then led by president Jennifer Baptiste-Primus. Union officials claimed the TTRA model had failed in other jurisdictions.
When Watson Duke took over the leadership of the PSA in late 2009, he claimed to have met a workforce that was demoralised because of plans for the establishment of the TTRA and the impending transfer of manpower from the BIR and Customs and Excise
Before Cabinet was able to formally effect operations at the TTRA, Manning called a snap election in 2010 which his People’s National Movement government lost to the Kamla Persad-Bissessar-led People’s Partnership Coalition.