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W(h)ither the accounting profession?

Introduction
At that age where reminiscing is one of life’s remaining pleasures it is with fondness that early memories of the accounting profession come to mind. It may be that it was unwarranted hero-worshipping, but many newcomers to the profession held those referred to in that bygone era who were respectfully described as “qualified” accountants in the highest esteem. Undoubtedly young and impressionable, we held onto those images that we had created for dear life and it drove new entrants to the profession to try to achieve great things so as to gain the approval of their heroes and be admitted into their realm. We aspired to be like them; we worked hard, studied hard and played hard, because that is what accountants did in those days behind the boring, stodgy facade. The seniors and partners at Pannell Fitzpatrick, (the largest accounting firm in Guyana at the time and grandfather of the current TSD Lal & Co) along with Willie Stoll, Victor Gangadin, Yesu Persaud, Alan Luck, John Barcellos, Ossie Baptiste and Sugrim Mohan, the pre-eminent accountants of the era, were men of mystery who every young accountant knew were the big men on campus and hoped someday to be like.Sadly today not too many in the profession possess that aura.

Those days have long gone, but still it was jarringly noticeable that in his speech calling for an assault on corruption the outgoing chairman of the Private Sector Commission (PSC) Mr Ramesh Dookhoo mentioned the accounting profession not once but twice. This reference could be interpreted in two ways: either the gentleman feels that the accounting profession has a role to play in attempting to curtail corruption or cynically, that it is already playing a role, but as an accessory. It was not an inopportune time, coming in the midst of a furore in which the highest ranking accountant in the country is embroiled in a controversy in which anyone, save those directly involved and those in the Guyana Government, can see an obvious and blatant conflict of interest. Such is the egregious nature of the situation that it moved no less a person than the Vice-President of the domestic accounting regulator, the Institute of Chartered Accountants, Mr Chandradat Chintamani – no stranger to conflicts of interest himself – to pronounce “…my position is that it is deemed as a conflict of interest.”

Mr Dookhoo of course speaks with some knowledge and experience of the shenanigans of the accounting profession and their sometimes inappropriate liaison with corporate management. He would know of instances in which management has been less than cooperative with the internal auditors – the frontline warriors against poor accounting and controls and the kinds of internal dealings engaged in by management. As a long-standing director of the Private Sector Commission he would have been privy to both anecdotal and empirical information and indicia on corruption and tax evasion. The PSC has often made noises about tax reform, even though when it comes to walking the talk it has failed spectacularly. So I have some empathy with the negative views of the profession expressed by Mr Dookhoo, even though I do not think it was a collective mea culpa.

Where I differ from Mr Dookhoo – and without holding any brief for the local profession which deserves even stronger criticisms than it currently receives – is that he fails to see or acknowledge the unholy alliance between corporate Guyana and their auditors, not unlike the complaint against the police or customs officer who is castigated and sometimes prosecuted for receiving a bribe while the perpetrator goes unpunished.

Mr Dookhoo will be familiar with the improper transactions in which many company directors engage with their companies; unrecorded sales and related parties transactions; under-the-table payments by them, the source of which is never pursued and their destination never accounted for; and the tax free payments made to staff as “non-taxable” allowances to facilitate a reasonable take-home pay. As an accountant I can say that the avenues of tax evasion are varied and many, but like the rest of the private sector, the Private Sector Commission has never ventured to categorise tax evasion as corruption; rather it is euphemistically called tax minimization. Nor did Mr Dookhoo unambiguously question the role in all of this played by significant segments of corporate Guyana which are then prepared to reward their accountants commensurately. He was lucky that the President was in a charitable mood and did not respond to his call for him to address corruption at high government levels by pointing out that the public sector does not have a monopoly on corruption and that the private sector plays a not insignificant role in the scheme of things.

If the Private Sector Commission wants to achieve more than mere positioning itself on the right side of the corruption debate, then its officers must do more than just make farewell speeches. Mr Dookhoo’s statement about the profession would have had even more credence and weight if he had called on the President to ensure that the Public Procurement Commission is established without delay, associated the PSC with Transparency Institute’s call for anti-corruption legislation; pledged its support for the national efforts to stamp out tax evasion; and had reminded the President that the Tax Review Committee needs to be reconceived to replace the one that was stillborn. Hopefully his successor would take a stronger stand in the national interest.

Noble profession?
Members of the profession should not be surprised if the latter of the two interpretations of the remarks by Mr Dookhoo is embraced by anyone. In fact the statement offers an opening and a challenge to those still committed to practise professional values while offering leadership to those aspiring young accountants who have hitherto seen accounting as a noble profession. Why should they and the rest of society not be cynical about the declarations concerning integrity, high ethical standards and professionalism, when they see them being trampled upon and violated by members of the profession? The question we must answer is how did the profession arrive at this place where worldwide it is on the verge of becoming synonymous with greed and financial scandal?

Sounding the alarm
As far back as 1985, long before the much publicized demise of Arthur Andersen resulting from the Enron scandal, the American Institute of Certified Public Accountants was beginning to press the panic button. A report by its Special Committee on Standards of Professional Conduct had this depressing but prescient observation:

“There has been an erosion of self-restraint, conservatism, and adherence to basic professional values at a pace and to an extent that is unprecedented in [the] profession’s history… we believe the profession is on the brink of a crisis of confidence in its ability to serve the public interest” (Special Committee 1985 3-4).

The most damning portion of this statement is the last, that warns of a crisis of confidence in the ability of the profession to serve the public interest. The warning was vindicated with the spate of accounting scandals bearing the name Enron. Users of financial statements over time have relied on accountants to use their professional, training, skill and judgment to give objective assessments of financial information. The profession – until the relatively recent past and the repeated black eyes it has received as a consequence of aggressive practices, greed, and disregard for ethical standards – has been by and large self-regulating in many countries, and this is still the case in Guyana.

The view of the professions, and accounting was no different, was that their members possessed the requisite skill and would exercise due care in the execution of their duties. They were perceived as being special and therefore they were allowed to set their standards, establish their own rules and were given the authority to discipline their members. This works well if their membership maintains those standards which over time establish and reinforce the credibility and integrity with which to serve the public interest.

Without this a profession is of no consequence and many countries recognizing the failings of the accounting profession have increasingly introduced regulations to compensate for its shortcomings. It is time that the fig leaf of self-regulation be revisited in Guyana – but then what do we do about the incompetent, incapacitated Audit Office? We are in a real dilemma.

Impeccable record?
The Institute of Chartered Accountants of Guyana (ICAG) has been noticeably absent from the public discourse on any issue, even if it has direct implications for its members or relates to matters on which it has a responsibility to educate the public. In Guyana, the impeccable record of the profession has never, as far as this writer can recall, been tarnished by any disciplinary action against any of its members; an amazing accomplishment perhaps worthy of recognition by the good folk at the Guinness Book of Records. Based on recent events, however, it appears that there is a blot on that record on the horizon because surely the Institute of Chartered Accountants of Guyana must now deal with the twin issue of the Minister of Finance and his wife who are both professionally qualified accountants and subject to the strictures of the local body. It is hoped that the usually indolent body will now move expeditiously in a manner that restores Mr Dookhoo and the public’s faith in the ability of the accounting profession to regulate its members.

Hard choices
There has been enough adverse publicity for the profession almost on a daily basis, so there is no point dwelling on the litany of scandals with which it has been confronted worldwide. The focus should be on whether the members of the profession are prepared to engage in the introspection necessary to redeem their reputation. The deafening silence in the face of both public and private sector abuses must no longer be the cloak behind which the protection of fees takes precedence over the discharge of statutory and professional obligations. While the profession throughout the world has issues, my concern is with what is happening in Guyana, and the worn out cliché that there are problems everywhere does not cut it. The ICAG has a duty to take principled positions when necessary even if they are unpopular and have a financial cost, because it is the only way to carry out its mandate of serving the public interest. It also must not shy away from exercising its authority to institute disciplinary measures against any of its members, high or low, whenever necessary if it wants to restore its credibility in the eyes of the public.

Conclusion
Accountants who want to be respected as professionals must walk the walk or they do grave disservice to the profession, the public and all those many young people who are just getting into or are thinking of embarking on careers as accountants.

The almighty dollar must not be the shrine at which pseudo professionals are prepared to sacrifice their principles and ethics.

Perhaps there is a message in Mr Dookhoo’s statement perhaps not; only he knows that. What everyone does know is that the reputation of the accounting profession, though not quite in tatters, is not a long way away from achieving that status. It may be that an unintended consequence of the fallout from this latest exhibition of arrogance on display from the Finance Minister and his colleagues is the long awaited awakening of the ICAG from its long, deep slumber. Its Vice-President has left the door ajar; maybe other members will have the courage to kick it open. One can only hope.

On a final note, Mr Dookhoo also appended the legal profession to his charge. It is not certain whether that profession is any better than the accountants. But since it is known for its prolixity, the legal profession might wish to say something to help restore its own image and the reputation of its practitioners.

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Canadian auditor’s suggestion that Sharma be appointed Auditor General was tantamount to improper interference in Guyana’s affairs

Mr Deodat Sharma may not be a proper Auditor General but he surely knows how to play the political game. Last week, the Audit Office which he heads hosted a team of two from the Audit Office of Newfoundland and Labrador (AONL) with which the Guyana Audit Office claims a “twinning partnership.” The website of the AONL indicates no such partnership.

I understand from persons who attended a workshop conducted by the two visitors from Canada that one of them actually sought to advance the case for the confirmation of Mr Sharma who for seven years could not be substantively appointed because of lack of qualifications.

Mr Sharma’s lack of qualifications would likely prevent him from being appointed Audit Manager, much less Audit Principal or Auditor General, in the Newfoundland Audit Office.

In my view, the attempt by the Canadian gentleman was insulting, inappropriate and tantamount to improper interference in the operations of Guyana’s national financial watchdog which no Canadian Audit Office would accept and tolerate for itself.

Here are some interesting statistics. The Auditor General of Newfoundland and Labrador is appointed for a 10 year non-renewable term by the Lieutenant-Governor in Council and confirmed by a resolution of the House of Assembly. (Term limit for Auditors General is a common feature in other countries as well, but not in Guyana.) The Newfoundland Office has less than a quarter of the staff of the Guyana Audit Office – 36 compared with 150 – but while 28 of their staff hold professional accounting designations (78%) only 2 or 3 persons (1.33% or 2%) in the Guyana Audit Office are similarly qualified.

In its work, the Office of the Auditor General of Newfoundland and Labrador complies with the professional and ethical standards established by the Canadian Institute of Chartered Accountants. And according to that Audit Office, they adhere to professional codes of ethics and independence standards; exhibit independence in fact and in appearance; and avoid perceived and real conflicts of interest. In Guyana we aspire to and apply low or no standards.

I do not for one moment however believe that it is only because of lack of qualifications throughout the Guyana Audit Office that it has failed so miserably in unearthing the kind of frauds which the reporters from Kaieteur News and to a lesser extent, the Stabroek News, have been uncovering.

Rather, it is because some of those who hold senior positions cannot afford to jeopardise their position or embarrass the Minister of Finance and the government.

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It is 0.01%, not 1% – Part 2

Introduction
The events of the past week have been significant and distracting. It started with the sole AFC representative on the Public Accounts Committee not attending one of the most critical sessions of the PAC – ever. In the process and against all the rules of professional ethics, the wife of the Minister of Finance has been elevated to being the key intellect and influence in the Audit Office. That failure by the AFC for which it never even bothered to express regret, let alone an apology and sanction, was followed by the announcement of the renewal of the appointment of Professor Compton Bourne for another three years. Within three days he renounced the extension, leaving the university in continuing shambles. Then came two resignations: one from the CEO of NCN Mr Mohammed Sattaur and the CEO of telecommunications giant Guyana Telephone and Telegraph Company Mr Yog Mahadeo who only hours earlier had been elected Chairman of the Private Sector Commission. And as the Minister of Education proudly announced the results of the Grade 6 examinations, the contract of a top education official was summarily brought to an end, for what the Minister described as “different” reasons. For a small country of barely three-quarters of a million, our capacity for spicy news seems to be boundless.

But let us return to the topic begun last week in which I made the point that the disparity or gap between the rich and the poor – or as Jagan used to describe them, the haves and have-nots – is reaching alarming proportions. I advanced the proposition that nought-point-nought one per cent (0.01%) of the Guyana population owns between 70 and 80 per cent of the private wealth of the country. On the one hand most of these people keep a very low profile: at least in Guyana. One of my seventy-eight held the wedding of his son at Disney in Orlando. Another preferred to take many of his guests to his daughter’s wedding in New York rather than have it in Guyana. The members of this privileged group are seldom seen in the newspapers – not even giving to charity. With helpful attorneys and accountants in their corner they generally feel less insecure giving to the party than the state in the form of taxes.

Trickle down
On the other hand, with no control over or accountability of election funding, the 0.01% know they control the politicians. Part of this country’s unfortunate problem is that none of the political parties or leading politicians has ever expressed any real interest in any but a market-based, trickle-down economic agenda, if at all. If we need any evidence of how the legislators treat the working poor in the country consider the following: for four years, the regulated wage was $100 per hour for several thousands. Thanks to Labour Minister Dr Nanda Gopaul, that was raised to $140 per hour, which is still not enough, but yet the 0.01% grumbled.

President Ramotar had promised and in fact appointed a committee to review the tax laws. That committee never met, never had any terms of reference or any time-table. To the embarrassment of the members, the committee is as good as dead. It is no surprise that the tenure of Mr Ramesh Dookhoo as chairman of the Private Sector Commission has come to an end without anything to show for it in terms of tax reform.

Not theory
As a country we remit or forgive as much in taxes (tax expenditure) as we collect. The Audit Office has quietly dispensed with reporting on these. But they alone are not to be blamed. Think of those MPs for whom the first order of business – and last as the Parliament comes to an end – is their duty-free vehicle. Like the businessmen among the 0.01%, MPs seem not to care about tax reform once they themselves benefit. The most egregious example of course is Mr Jagdeo who signed into law an act that allows him to enjoy for life every known duty concession and complete exemption from any taxes from any source. The man can go into business in newspapers, hotel, airline, tourism or anything else, and will pay no taxes. Not ever.

The obscene income disparity is not a theoretical construct. It is as real as people’s lives. It helps to explain but does not justify or condone the level of crime in our society, the reasons why most women stay in a hostile abusive relationship, migration, low worker morale, poor educational standards and the other ills of society. Our tragedy is that for most, this is the natural order and success is measured entirely in economic terms. Notice how the Education Ministry did not even remark on the absence of hinterland or riverain schoolchildren in the list of those who did well in the recent Grade 6 examinations. The irony is that there are three Amerindian ministers in the government and one former minister administering to the Amerindian votes rather than their needs.

Of the 1%, by the 1% and for the 1%
According to a Vanity Fair article titled ‘Of the 1%, by the 1% and for the 1%,‘ many people look at income inequality and then look away. Like Mr Jagdeo, Dr Ashni Singh would like us not to consider how the pie is divided but the size of the pie. Vanity Fair considers that argument fundamentally wrong because any economy in which most citizens are doing worse year after year cannot succeed over the long haul. Two points made by Vanity Fair seem particularly relevant to Guyana.

First, growing inequality is the flip side of something else: shrinking opportunity. Whenever there is a diminution of opportunity for all, the most valuable assets – people – are not used in the most productive way possible. The second is that many of the distortions that lead to inequality, such as those associated with monopoly power and preferential tax treatment for special interests, undermine the efficiency of the economy. This new inequality goes on to create new distortions, undermining efficiency even further until the system collapses. That surely was the experience and lesson from the Arab Spring, a lesson we are willing to ignore.

It is manifest in our tax system which has all the elements for the creation and sustenance of widening disparity: no taxes on dividends, lower rates on capital gains, massive tax exemptions and widespread tax evasion well beyond the capacity of the GRA and the inclination of the courts.

Progressive (differential) taxation
More than any other tool, the means by which government finances and depletes its treasury by way of tax giveaways affects the societal distribution of wealth. Quoting John Rawls in a Theory of Justice in an article making the case for progressive taxation, Jim Chen of the University of Louisville Law School has argued that differential taxation and targeted spending are the most significant and most effective means by which government can “gradually and continually… correct the distribution of wealth to prevent concentrations of power detrimental to the fair value of political liberty and fair equality of opportunity.”

So that while economists and social planners are convinced that progressive taxation is the most economically efficient means for redistributing wealth, every administration beginning with Hoyte has entrenched a system of taxation that offers opportunities for some at the expense of others.

For sixty years, Guyana had a system of progressive taxation which imposed higher rates as the level of income rose. So for example, the first $25,000 of taxable income was subject to a tax rate of 10% while the next and the next would be taxed at 15%, 20% etc. Progressive taxation was also evident – and still exists – in relation to expenditure taxes with the goods and services used by the poor subject to much lower tax rates than luxury items. That we still have such a structure under the Customs and Excise Tax Acts ought to be a convincing response to those who complain about the administrative difficulties of a progressive system in taxation.

It is perhaps the nature of our society that income inequality and the return of progressive direct taxes are not ever discussed, even among economists. In just about every other country, progressive taxation has endured as the primary engine of redistribution in terms of taxation. Economic policy has been driven by wealth creation for the 0.01% and safety net for the remainder. With all the power and influence residing in the handful, change will not come from them.

Private sector
Is the private sector any different? Only the optimist and the charitable will say yes. We have few enlightened employers among us, and even those who try to top up their employees’ remuneration do so at the expense of the treasury by way of under-the-table payments not subject to tax. Contrast that with the following table that shows the share of the total compensation earned by key management personnel – the decision-makers – as a percentage of the total compensation of our major entities.

Source: Annual Reports 2011

And let me say that these do not tell the whole story. The cost of all the perks enjoyed by the few persons falling within this exalted group is by definition not included in their compensation. And let us be fair to Demtoco – it hardly carries on any business in Guyana so has just a few strategic staff. The percentage is also influenced by how the definition of key management personnel is applied with accounting rules becoming increasingly permissive; no longer are companies required to disclose the number of their employees while enjoying much latitude in how they define compensation.

Conclusion
In these past two articles, I explored the inequality of opportunities and income among Guyanese. The best hope for a fairer economic system had rested with President Ramotar who before becoming President had often lamented its injustice. Seven months into his presidency, he has shown no interest in what is now the status quo. For the 99.99%, the unequal distribution of income has deprived them of opportunities. Their hopes lie in a hustle – or migration.

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It is time that Guyana has a proper Auditor General

A recent news item in the print media gave the impression that the appointments of four senior members of the Audit Office’s staff have already been made by the long-acting Auditor General Mr Deodat Sharma. That would conflict with the Audit Act under which any proposed appointment first must have the approval of the Public Accounts Committee.

I am concerned that this attempt by Mr Sharma – which not surprisingly has received the support of the head honchos of the PPP/C members of the Public Accounts Committee – is a precursor for himself to be confirmed. Clearly, if the number two position from which he was moved up is subsequently filled, he cannot then step back into it, if and when a decision is finally made to appoint a qualified Auditor General from outside the Audit Office.

Mr Sharma has many handicaps. The first is that he is does not have the qualification to be the Auditor General. Accordingly, he has to rely on – as his key qualified staff – the wife of the Minister of Finance who is responsible for the country’s public finances generally and solely responsible for the Contingencies Fund.

The lack of that competence that comes with professional training has meant that in the six audit reports on the public accounts Mr. Sharma has issued since he was appointed to act, he could do no better than identify two major issues – the tendering procedures for drug purchases and the fact that the drawings from the Contingencies Fund did not meet the qualifying test. But he did not initiate the disclosures – they were continuing developments identified by his predecessors.

In relation to the Contingencies Fund, his reports consistently misquote the law relating to replenishments – conveniently to the advantage of the Minister – and second and very importantly, he does not report findings on the actual payments. No wonder it takes him more than three months to report on a $90 million expenditure in an engagement in which he is taking a lead role. Such an audit should take a pair of reasonably capable junior auditors properly guided two weeks maximum.

Mr Sharma has made lots of promises before. He promised in the 2009 Audit Report to complete before December 2010 value for money audits of the drug purchases by the Ministry of Health and the tender procedures of the government. Before that he had promised audits of the Cricket World Cup, Carifesta and the 2005 Flood Audit. And of course, he had promised that by end of April 2012 he would have completed the $90 million audit of Contingencies Fund, a promise accepted by the National Assembly.

It is impossible to say whether Mr Sharma is as keen to be confirmed in the job as the government is to have someone who hesitates to go after Mr Ramkarran’s “pervasive corruption.” The compensation package now enjoyed by Mr Sharma is the same as that of the Chief Justice and the Chancellor. It would seem that it is as normal for no one to risk giving up such an undeserved package as it is for no government to appoint, even in an acting capacity, a Chancellor or Chief Justice possessing only a para-legal degree.

The Constitution of Guyana provides that whether as a substantive appointment or acting Auditor General, the appointment of the Auditor General is made by the President acting in accordance with the advice of the Public Service Commission.Whether or not President Ramotar wants to deal with corruption, it is time that Guyana has a proper Auditor General.

Once a substantive Auditor General has been appointed, that person working with the Public Accounts Committee can then address the other senior positions and indeed the rest of the staffing of the Audit Office, including the issue of conflict of interest under the Code of Conduct governing accountants.

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It is 0.01%, not 1% – Part 1

Introduction
I will start with a simple but stark statistic. My list shows that nought-point-nought one per cent (0.01%) of the Guyana population owns between 70 and 80 per cent of the private wealth of the country. Let me put it in absolute numbers: Nought-point-nought one per cent is equivalent to seventy-eight individuals or one out of every ten thousand persons. And my definition of private wealth excludes state-owned assets and companies such as GuySuCo, Guyoil and Guyana Power and Light. I have excluded as well the foreign owned or controlled companies such as RUSAL, BOSAI, Barama, Scotia and Republic Bank.

In my seventy-eight there are two families but the remainder are all individuals. Except for a couple of cases, there is not a lot of old money around. Current wealth includes new money, drug money and every kind of funny money in-between. Most of the wealth has been accumulated in the last twenty years. This period had its genesis with Desmond Hoyte’s Economic Recovery Programme which began in 1989 and was followed text-book style by successive PPP/C administrations. It seems almost bizarre that this same PPP/C once embraced socialism under the mantra of the defence of the working class. In opposition, the PPP/C’s founder used to rail against the obscenity of the income gap; in government it is a different tune.

With the present meteoric increase in personal wealth has come a scale of income disparity that the powers-that-be find too uncomfortable to discuss, let alone accept. Despite the absence of proper statistics or any published study of this growing problem, the gap between wealthy Guyanese and the rest of our citizens is now a daunting reality. Perhaps the absence of any study has to do with the absence of statistics but surely our economists at the central bank and the University of Guyana can and should make some attempt.

America and Guyana
For years now I have been lamenting the fact that even as we keep talking about tax reform, there are no published data by any of the relevant agencies including the Bureau of Statistics or the Guyana Revenue Authority (GRA) to tell us about sectoral and regional contribution to the tax revenues of the state, the number of persons – companies and individuals – who pay property taxes and capital gains tax, or the income tax paid within bands of various amounts. With the complete computerization of the (GRA) and the kind of information required to be supplied in tax returns, the generation of data for policy-making and research is a matter of the click of a mouse.

It is interesting to note that in that bastion of the free market, the issue of income and wealth disparity is now widely discussed at the highest levels, even in legal journals. I recently read an article tracing the origin of the wealth gap in the USA from the period of the Great Depression to the modern day. In fact, George Bush, whose presidency would be most remembered for the Iraq war and the Bush tax cuts, in 2007 acknowledged the gap, conceding that “income inequality is real.” He was confronted with statistics which showed that the top 1% owned 34.6% of America’s assets and the next 19% held 50.5% of them. Just one-fifth of that country’s citizens therefore controlled over 85% of the country’s wealth. The bottom 40%, by contrast, owned only .03%. The effects of that prosperity gap were harshest on children who were twice as likely as adults to be poor.

Protest
Those inequalities are not as severe as they are in Guyana. Yet policy-makers, academics and American society in the US are responding. Their dissatisfaction gave rise last year to a spontaneous populist protest which began with a few dozen demonstrators pitching tents on Wall Street in front of the New York Stock Exchange which was seen as the epitome of greed and inequality. Soon hundreds that included union activists joined them in a nearby park and the movement spread to a number of cities around the country. The police and the courts were less than tolerant and the Occupy Wall Street Movement as it came to be known fizzled out, but not before it had brought that stark unfairness to the full attention of the American public.

Here are some more statistics from that country. The wealthiest 1% of Americans already has a greater net worth than the bottom 90% based on Federal Reserve data.” Nobel Prize winning economist Joseph E Stiglitz writing in the May, 2011 issue of Vanity Fair magazine was even more dramatic when he said that “in our democracy, 1% of the people take in nearly a quarter of the nation’s income and own 40% of its wealth, the highest percentage since 1948.”

In Guyana the situation is most definitely more pronounced. In the recent period of the reasonably good economic growth during which persons found themselves able to afford a mortgage or a reconditioned car, the disparity may have been felt mainly by single mothers, the unemployed and those on low fixed incomes. But characteristically, as we seem ever so willing to feed the destructive gods of old with the political gridlock of the new dispensation, the economy could soon experience falling investments, a softening of the real estate market, fewer job opportunities and a dampening of consumer demand. Like in the US, the impact will be felt most by those at Cheddi’s “bottom of the ladder.”

How did we get here?
There are a number of reasons for the situation we now face – some good and some bad. There is an old saying that wealth begets power, which begets more wealth. Look how those close to government have managed to move from state asset acquisition to lucrative government contracts with generous concessions, some of which brought income with no taxation, and then on to more acquisitions. Quite a few in my seventy-eight would be included in this category. The increasing ownership and control of resources allowed these persons access to political power and yet more opportunities. With a population of only seven hundred and eighty thousand, very few could amass real wealth other than by way of government contracts. As street smart businessmen, at least some among the seventy-eight readily respond to calls to “help the party” which not only rewards but also protects them.

Then there are a few who by their ingenuity, creativity and entrepreneurial flair have seized upon business opportunities in an environment of little and corruptible regulatory controls and poorly enforced of laws, some of them clearly needing revision. Others have got lucky, such as those in the gold mining sector which has benefited from an extended boom in the gold price internationally while enjoying a tax system locally that was clearly not adaptable to the current era.

Some have had windfalls bestowed on them through the tax system. The first is not only that successive administrations have ignored the important role which taxation could play in bridging the income and wealth gap, but have actually contributed to its widening. Early o’clock Hoyte abolished the Estate Duty, a tax that captured in death what was avoided in life. Hoyte also removed taxation from dividends so that the wealthy in receipt only of dividend income were exempt from tax while the workers were taxed at the standard rate. Hoyte it seems did not see that there was a range of possibilities when it came to estate duty or dividend taxation. To cap it all, Hoyte also abolished the progressive system of personal taxation in favour of what is effectively a flat tax.

Then the PPP/C
Then came the PPP/C. But instead of following their philosophical line and at least reviewing and modifying the massive concessions Hoyte gave, the PPP/C went even further. They added icing on the tax exempt dividend cake by removing capital gains on the disposal of shares in public companies so that that both income and capital gains on shares in public companies are exempt from taxes. The objective of the concession never materialised but the goody continues.

This government also showed evangelical faith in tax shelters covering a range of income. Encouraged by the country’s Double Taxation Treaty with Caricom, our tax system actually rewards off-shore versus local investments and makes many types of income non-taxable. These emphasise that our tax policy needs to be more creative and re-configured to ensure that the average middle-income earner does not pay a higher tax rate than companies. Equity as a canon of taxation certainly does not operate in Guyana.

The absence of equity (fairness) also shows itself by favouring higher paid income earners over the lower paid employees. For example, the law is more likely to disallow a five hundred dollar meal allowance for the junior employee than a five thousand dollar dinner for the senior manager; a two thousand dollar travel allowance to the junior employee than even two fully maintained company cars with driver and all.

Gold-mining as a sector has a very favourable tax regime for individuals – 2% of the gross value of declarations, which is generally thought to be less than half of actual production. If that is the case, miners pay a total of 6% (5% royalty and 1% tax) for the extraction of a non-renewal resource. In construction and agriculture, the government has resisted every attempt to introduce withholding tax in these sectors which always complain about the onerous record-keeping requirement of the laws. If the withholding tax is made creditable, it is up to the business to choose whether or not to file financial statements with the GRA.

Then there is evasion
Unfair though the above may be, they are all legal and on-the-books transactions. But in addition to these, there are a good number of scams which are used to cheat the revenue of the country. In not too few cases, senior level persons use their employed status as a tax front while engaging in more lucrative side interests, including trading with their own companies, dealing with real estate, or carrying on another business. With the Revenue treating such persons as subject only to PAYE, all their other income is tax-free.

Another scam used by employers is to pay a huge chunk of the employees’ emoluments by way of tax free allowances. In one recent case told to me, the allowance was close to twice the salary while the entire payment was effected by cash. In other words, the taxpayers of the country are subsidizing that employer who incidentally is among my 0.01%.

And of course we have the army of self-employed who convert VAT into income by charging their customers but are not paying over the VAT to the Revenue. They know that for all its efforts and intents the GRA is overwhelmed by the army of tax evaders and that the chances of prosecution are very, very low.

Look at yesterday’s announcements of tenders opened. In addition to the closeness of the bids to the engineers’ estimate, note the preponderance of self-employed. They are not risking personal liability for nothing. They know they are safe.

To be continued