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.