PPP/C’s Income Tax Act amendment is also unconstitutional

The Stabroek News of Friday January 6, 2017, reported that two parliamentary representatives of the PPP/C criticised but abstained from voting on an amendment to the Value-Added Tax giving the Commissioner General the right to prevent persons, through the Chief Immigration Officer, from leaving the country once they owed VAT.

And in the letter columns of the Stabroek News of January 7, former Attorney General, Mr Anil Nandlall returns to the issue with a reasoned argument whether the amendment violates the Constitution and is therefore void (‘Section 45 of the VAT Act is unconstitutional’).

This is interesting because in 1993 then PPP/C Finance Minister, Mr Asgar Ally inserted by way of an amendment to section 71 of the Income Tax Act a new provision that is arguably more dangerous than the APNU+AFC’s amended VAT provision. Taking Mr Nandlall’s argument, it means that the PPP/C’s amendment to the Income Tax Act is, at best, on the same tenuous constitutional ground as the APNU+AFC’s amendment to the VAT legislation.

Garnishment and Distress Proceedings

Two proposals announced in 2017 Budget Speech – inserting into the Income Tax Act distress proceedings similar to the provision in the Value-Added Tax (VAT) Act, and garnishment of funds in bank accounts for the settlement of tax arrears – have caught the national attention. The discussion has not been helped by the misinformed and misguided statements in the media, even by columnists and persons who have a duty to be better informed.

That failure which is the cause of much of the confusion, misinformation and “noise”, has led to a situation whereby two very different provisions are conflated and wrong premises are used to defend or justify the two proposals. They should be addressed separately. Here is why.

The terms garnishment and distress are of significant legal and constitutional import and depending on circumstances may have different application to action against the person (in personam) and against the thing or property (in rem). As these matters apply to our Constitution they also raise the tension, if not the clash, between, on the one hand, Article 65 which grants to Parliament the power to “make laws for the peace, order and good government” and on the other hand, Article 142 which protects property rights subject to exceptions, as well as Article 8 which makes void any law inconsistent with the Constitution.

But first a piece of history. There was no garnishment provision in the original British Guiana Income Tax Ordinance passed in 1929. That came thirty-three years later as one of the measures introduced by the PPP Government in Act 11 of 1962 to give effect to that year’s Budget presented by C.R. Jacobs Jnr. but which came to be known as the Kaldor Budget. Persons from my generation will recall that that Budget was described by then Opposition leader Forbes Burnham not as the cause of war but the occasion for it. Of course, being an erudite lawyer, Burnham used the Latin for the aphorism although as the events unfolded in February 1962, the consequences were far from learned.

So what is now being proposed is the crude strengthening of a measure to which the PNC and the United Force were violently opposed and were prepared to do anything to block it, among others. Our columnists and self-serving and opportunistic politicians who have had an epiphany about the illegality and evils of tax evasion being such a bad thing may wish to go on the internet and google Wynn-Parry Report.

Both distress proceedings and garnishment are provided for in the VAT Act (section 49 and section 51 respectively) although instead of the word Garnishments used in the marginal note in the Income Tax Act, the corresponding marginal note in the VAT Act is “Recovery of tax from third parties”.

While the provision in the Income Tax Act pre-dates the 1980 Constitution and the VAT Act came much later, both are subject to the Constitution. And while the Constitution naturally allows an exception to the protection of property Article in the case of taxation, (otherwise how would the government be able to finance public services?) a taxing statute or a provision therein may be set aside as unconstitutional if it is confiscatory, discriminatory, disproportionate, or provides inadequate protection machinery for the taxpayer.

Perhaps somewhat confusingly, section 49 of the VAT Act speaks of both “distress proceedings” and “executing distress”. Distress is a summary remedy by which a person is entitled to take possession of the personal chattels of another without legal process while execution imports a legal process to give effect to a judgement of the Court. Moreover, section 49 is directed at goods, including perishable goods and allows the entry into premises accompanied by a police officer. Clearly, the Minister of Finance could not be referring to this section in discussing the expansion of garnishing funds from bank accounts.

The garnishment provisions of the VAT Act in fact mirror those of the Income Tax Act and have no direct or indirect reference to a bank account. Since the Minister wants to harmonise the VAT and the Income Tax Acts in these enforcement procedures, it may be presumed that the VAT Act will also be amended in this regard.

With respect to garnishment under the VAT Act, it is highly doubtful that the Commissioner can lawfully apply the provision before he has made a proper assessment on the taxpayer and after the taxpayer has exhausted his right of objection to the Commissioner, and appeals to the VAT Board of Review and to the High Court. Of course, if the taxpayer refuses to exercise his statutory rights of appeal, or to seek a remedy by way of judicial review, the Commissioner General would be within his rights to pursue the debt.

Absent from the discussion too, is any recognition of two other drastic procedures for recovery provided in the Income Tax Act. The first is under section 97 providing for the enforcement of a tax debt by way of parate execution, a Roman Dutch legal concept generally available to banks. As applied in the Income Tax Act, parate execution allows for the relatively speedy process for the disposal of property by the GRA. The second is under section 101 which provides that a certificate registered with the Registrar of the Supreme Court has the same force as a judgement of the High Court. The Act is unclear whether the Commissioner is required to avail himself of the section 101 process before seeking to apply 102. But instructively, section 101 is also a product of the 1962 Act referred to above.

It is probable that the idea for the introduction of distress proceedings into the Income Tax Act arose from someone who is unaware of sections 97, 101 and 102 of that Act and of the Rules of the High Court dealing with enforcement of judgements. The Commissioner General has confirmed that the distress and garnishment provisions in the VAT Act have never been applied and we know as well that the Income Tax provisions for parate execution under section 97, for a certificate under section 101 and for garnishment under section 102 have not been applied in all or the better part of fifty-four years, so why should anyone believe that strengthening any one of them is necessary? Does Prime Minister Moses Nagamootoo, the leader of the National Assembly know these things or wants to know them, insulated as he is from the day to day challenges of the working class whose interest he once claimed to champion?

The measures purportedly to improve tax administration seem more designed as a substitute for effective, professional administration and constitute a textbook case of draconian legislation. To use the words of the Sri Lankan Bar Association in similar circumstances, the proposed legislation is “discriminatory, draconian in their nature and harsh and superfluous”, grounds under which it successfully brought a constitutional challenge.

Provisions of the various Tax laws already give the GRA enormous powers for the administration of the Act and the collection of taxes. Its new head is familiar with the successful operations of those laws, having been part of the tail end of the glorious days of the Inland Revenue Department when it was respected for its professionalism, impartiality, competence and independence, characteristics which no doubt enabled it to operate effectively using the existing laws.

The new head does not need new, additional and draconian powers to be effective. He needs to apply the existing tax laws without fear or favour, with the same deference to big and small, and undaunted by touchable and untouchable alike.

Guyana must comply with CCJ’s ruling on the “environmental” tax

On May 8, the Caribbean Court of Justice handed down a decision in a case against Guyana brought by a Surinamese manufacturing company Rudisa Beverages & Juices N.V. and its Guyana subsidiary Caribbean International Distributors Inc. In essence the two companies were claiming a refund of what is called under the Guyana’s Customs Act an environmental tax of $10 on the importation of non-returnable beverage containers. The two companies asked the regional court which is the protector of the Revised Treaty of Chagauramas (RTC) among other things, to order Guyana to refund to them the sum of US$6,047,244.47 paid by them to the GRA up to 24th October 2013 and any further amounts paid since that date.

After submissions and arguments which began in June last year, the Court:

A) Declared that the collection of the environmental tax in relation to goods of CARICOM origin is incompatible with the RTC; and

B) Ordered Guyana to:

i) Immediately cease the collection of environmental tax on imported non-returnable beverage containers;

ii) Pay to CIDI the sum of US$6,047,244.47 together with such further sums paid by them from 25th October 2013 to the date of this judgement;

iii) Pay interest on the sums payable by this judgement at the rate of 4% per annum from the date of the judgement; and

iv) Pay the costs of these proceedings to be taxed if not agreed.
Continue reading Guyana must comply with CCJ’s ruling on the “environmental” tax

Not a watershed budget for the poorer person

As Guyanese analyse the Budget for 2013 it is useful to compare some of the numbers with how they are presented and received. There is no group which has welcomed the Budget more than the Private Sector Commission, one representative describing it as our (PSC) budget.

Let us take the apparently straightforward example of the reduction in the rate of personal income tax from 33⅓% to 30%. Readers will note that not only do individuals not have the benefit like dependents allowances while companies are allowed to deduct almost all their expenses, but the individual is still paying the same or higher rate of tax than non-commercial companies do, that is 30%.

If we exclude the personal allowance of $50,000 per month an individual’s nominal and actual tax rate is the same: 30%. Compare this with say GBTI whose nominal corporate tax rate is 40% but which enjoys a host of tax shelters. Its effective corporate tax rate for 2011 is 26.82%. Shareholders of GBTI pay no tax on dividends while its employees pay 30%. Even if we say that the company and the shareholder are the same – which it clearly is not – the shareholders’ tax rate is 26.82%. That is inequitable.

But let us get back to the benefits of the reduction in the rate of income tax and the increase in the rate of NIS, both of which impact on take home pay, or as the PSC says, spending power. In dollar terms, for each $10,000 earned by the worker the tax saving is $333. It means this: the worker who was earning $50,000 per month at December 31, 2012 gets nothing out of the budget; one who earned $60,000 per month takes home $333; one who earned $80,000 takes home $680 more, etc. The earliest point at which the increased take home pay exceeds $10,000 per month is for employees earning $380,000.

Note that I have not taken the projected inflation of 3.5% for 2013 into account. If that is done the income level at which there will be a net saving is for employees earning $296,000 per month. All persons earning below that income per month will actually be worse off.

The PSC is right: this is a watershed budget – but not for the poorer person.

Things we have not noticed – conclusion

This week I continue to raise questions on matters we may not have noticed in areas of public finance and management in Guyana. If former President Bharrat Jagdeo is rightly credited as the mastermind for the circumventing the financial provisions of the constitution and the financial laws, the credit for the execution of any schemes go to his choice as Minister of Finance, Dr Ashni Singh. Dr Singh as an accountant and former deputy Auditor General has used all his knowledge to confuse all and sundry over the Consolidated Fund and its sub-fund the Contingencies Fund, and other funds known and unknown.

Minister Clement Rohee should justifiably feel aggrieved that he is the only Minister of this government to have been targeted with a no-confidence vote in the National Assembly. After all, Dr Singh must at least have been aware of the deception over the rate of the VAT and the $4 billion for which Irfaan Ally was taken before the Committee of Privileges in the last Parliament while he, Dr Singh, was creatively spared by the then Speaker. He was central to the Clico debacle which has not been followed by any investigation into the serial illegalities that continue to this day; is solely responsible for the annual abuses of the Contingencies Fund; would have played a major role in moving more than $30 billion, yes thirty billion dollars, in dormant bank accounts without proper accounting; and is the minister with responsibility for the state of the National Insurance Scheme. And let us not forget that he is the Chairman of the NICIL Board that has been central to the breaches of the constitution and the inappropriately named Fiscal Management and Accountability Act. NICIL under him is several years in breach of the Companies Act and basic rules of accounting but he continues merrily on. Mr Rohee has every reason to think that there has been some goat in his past.

No more lottery accounting
We can assume that the Minister of Finance has had no hand in the decision to have Mr Ramson offer opportunistic advice on the lottery funds, but he clearly has no problem with the discontinuance by the Audit Office of the annual reporting of the funds collected and how they have been spent. It would be excessively charitable, however, to believe that he has not been consulted and has played no part in ensuring that his colleagues who were targeted for budget cuts earlier this year remain funded, parliament or no parliament, cut or no cut.

However assiduously, and at times clumsily, Attorney General, Mr Anil Nandlall, has rushed to position himself for entry into the Guinness Book of Records for the highest number of cases brought by an attorney general against his own parliament, the responsibilities and the powers of the minister of finance make his office the next most important one in the land. For that reason, while we just cannot afford not to notice the things the does, he and his government, with the help of a hardly working parliamentary opposition, a media that is at best poorly informed, a conflicted and handicapped Audit Office under an unqualified Auditor General, an equally unqualified Accountant General and a Finance Secretary with his own challenges and biases, have made sure he is the only brainer in the country, to use a word he employed recently to disparage his hosts at a public function.

As a specific example, how else does one explain the failure by the Audit Office, the National Assembly, the Public Accounts Committee and the press to demand an explanation for the non-tabling of a mandatory annual report on tax holidays granted by the Minister of Finance? There is sufficient anecdotal evidence that tax concessions alone cost this country about a half as much again as the taxes we collect, to make us take the Minister’s cavalier attitude to tax holidays a matter of substance and seriousness. Yet we as a country choose not to notice. We must have lost our marbles along the way.

Unrestrained powers
Who in the political opposition, the wider National Assembly or the Economics Affairs Committee have taken the time to consider and understand the powers the laws give to the Minister to grant all forms of tax concessions without any disclosure or accountability? I am convinced that the reason tax reform is not on the agenda is that it might expose the lawlessness as well as the ease and impunity with which even illegal concessions can be granted to friends and family alike. We have all forgotten that it is now one year since President Ramotar set up a Tax Review Committee while ensuring that it would not function. As the GMA, the Chamber of Commerce and the Private Sector Commission head into the fund-raising activities and the fun of the cocktail circuit, maybe one of their leaders would ask about the fate of that committee as well as the state of the NIS.

But let us stick to the question of taxes and see the extent of the powers of the Minister of Finance in addition to the power to grant tax discretionary holidays.

The Minister of course has powers to make laws under what is referred to as delegated legislation, and should have these tabled in the National Assembly and published in the Official Gazette. While this tool is seen as useful in enhancing the efficiency in public administration and is available generally to all ministers, the proliferation of such subsidiary legislation has aroused increasing scrutiny. As a result, countries around the world and more recently Australia have introduced legislation to regulate when and how such delegated legislation is used.

I thought it might be useful in an article of this nature to separate the powers of the minister of finance into those that have been used to help in curbing corruption from those which enhance public financial management in Guyana.

The incumbent has done nothing on corruption other than to challenge the Transparency Institute and question Guyana’s place on the Corruption Perception Index. He has centred procurement in his office, and his ministry was the biggest defender of Fip Motilall who cost this country so much.

The incumbent has to consider himself the luckiest man alive for not having been subject to a motion that he be brought before the Privileges Committee of the National Assembly.

Tax laws
Let us now look at some of the powers of the office granted to him by various laws. The Minister can effectively make laws to provide that the interest payable on any loan charged on the Consolidated Fund or guaranteed by the government is exempted from the tax; to approve as a mortgage finance company any company which has entered into an agreement with the government whereunder the company agrees to finance housing development; for the introduction of a presumptive tax on the income from self-employment of individuals who have annual turnover from self-employment of less than ten million dollars (not done); for the introduction of a minimum tax on the income from self-employment of individuals whose annual turnover from self-employment exceeds ten million dollars (not done); exempting under defined circumstances the income of non-resident shipping companies; deciding which sectors and products receive export allowances; designating the allowable expenditure for development of agricultural land; designating the central authorities for transacting diamond business; providing for minimum tax on self-employed professionals (not done); exemption from filing returns by persons whose income comes mainly from employment or interest (not done); specifying the books and records to be maintained by persons carrying on any business; appointing an agent in the UK for the purpose of facilitating the assessment of the income of persons residing in the United Kingdom (a clear throwback to the days when England was the Mother Country); appointment of the Board of Review (which has not been done for several years); making and revising Double Taxation Agreements (which has not been done for nearly two decades); entering into agreements with other countries for the exchange of information for the prevention of evasion or avoidance of income tax and the carrying out of those agreements (not done); prescribing the times for the payment of taxes by companies; and providing for the remitting wholly or in part of the tax payable by any person or category of persons on such income, in respect of any year of assessment, and in accordance with such conditions as may be specified in the regulations.

And that list is under the Income tax Act only.

Under the Corporation Tax Act the Minister can declare as exempt the income of any institution established for the encouragement of thrift or any income arising from investments of any fund or scheme established for the provision of annuities to designated persons.

But his real opportunities for acting in the most unaccountable and irresponsible manner lie in his power to grant tax holidays and two other lesser known provisions of the laws, one in the Income Tax Act and another in the VAT Act. Under the Income Tax Act, the Minister has the power to reduce the rate of withholding tax on any distribution or payment for the purpose of giving effect to any agreement relating to tax between the government and any person not resident in Guyana. Neither the GRA nor the Commissioner General has any say in the matter but must simply do as the Minister says. Nor is there any reporting of the exercise of this discretionary power.

And under the VAT Act, in order to zero-rate a supply of goods and services, all the Minister has to do is sign with a person an investment agreement for which there is no definition, specified contents or penalties for non-compliance with any promises by the investor.

Additionally, the Minister of Finance makes all the delegated legislation under the Value-Added, Excise and the Customs Acts and appoints directly or indirectly all the members of the Revenue Board which exercises wide policy-making powers over the administration of all the revenue collecting agencies.

These are enormous powers that are hardly regulated, if at all. True, the Financial Management and Accountability Act has certain guidelines on the charging of expenditure on the revenue of the country; how sums due to the revenue be remitted; and the authority for the remission, concession, or waiver of taxes.

The Minister has shown himself time and again to be irresponsible and willing to bend and if necessary to circumvent the law. There is hardly a qualified accountant in the traditional public service, and both the posts of Auditor General and the Accountant General are held by unqualified persons. It is not the ideal environment in which the Minister of Finance is a Dr Ashni Singh. Rather than allowing Deodat Sharma to misdirect them with petty cash issues, the PAC must make a concerted effort to rein in the excesses of Dr Singh which have cost this country tens of billions.

The Economic Affairs Committee has work to do.