Viewpoint: Brian Hackett
A sluggish and largely non-diversified economy, coupled with difficulties collecting taxes, has burdened T&T for the last few years. The declines of both hydrocarbon production and prices have severely reduced tax revenues from the energy sector. Receipts from petroleum fell from over TT$20bn ($2.9bn) in 2014 to less than TT$1bn ($148.3m) in 2016. Tax revenues as a whole, meanwhile, dropped from TT$51.6bn ($7.7bn) in 2008 to TT$42.3bn ($6.3bn) in 2015.
While the economy has shown some early signs of recovery, with crude prices averaging $59 per barrel for the first six months of the fiscal year, FY 2018 is still forecast to end with an overall deficit of approximately TT$4.2bn ($622.9m), or 2.5% of GDP. According to a 2017 estimate, leakages account for TT$11bn-16bn ($1.6bn-2.4bn) of lost revenue per year. The informal economy remains largely untapped and the tax burden continues to fall on already-compliant taxpayers.
Although the passage of the legislation, which still requires a majority, is an issue, the TTRA has been portrayed in some quarters as an economic panacea that will protect the government’s revenues by significantly boosting tax intake. The inadequacies of the collection system were highlighted by an inter-sectoral committee commissioned by the state almost two decades ago. That committee identified the following problems, most of which still apply: deficiencies in the legislative framework; high incidence of corruption; poor customer relations; inadequate management, accountability and training; inadequate information exchange and coordination between the administration and other agencies; and outdated and inadequate use of technology. The committee concluded that the required transformation would be difficult to execute within the public service framework, and thus promoted the creation of a semi-autonomous revenue authority (SARA).
SARAs are agile, responsive, professional and structured to enable them to reduce the risk of political interference and incentivise officials to limit corruption. To this end, it is proposed that the Ministry of Finance focus on tax policy and transparency, while the TTRA would oversee tax administration, human resource management (HRM) and financial probity.
SARAs are now in use in Canada, the UK, the US, Singapore, Australia, Guyana, Jamaica and Barbados. Their success has revolved around using staff assessments, accountability measures and stronger laws to improve customer service, boost performance and reduce corruption. They also capitalise on synergies created by unified bodies for both direct and indirect taxes and use technology to identify and close loopholes.
While SARAs can be instrumental in initiating reform, there have been instances of benefit erosion wherein inefficiencies and corruption reared their heads again. This highlights the need to monitor the TTRA’s performance and to design systems that permit swift structural adjustment when deficiencies are noted.
The TTRA will not be without its challenges. It is difficult to conduct effectiveness assessments during fiscal regime reform, when an increase in tax collection may be attributable to an SARA or a new tax rate. The TTRA also faces constraints in terms of hiring. Having disbanded the prior plan to require the current tax administration staff to reapply for positions at the TTRA, it is critical for the agency to be highly geared towards addressing HRM, and towards tackling corruption and performance in particular.
The TTRA’s implementation is awaited with mixed views. Most people are optimistic that, with the right balance of focusing on customer experience and systemic shortfalls, the TTRA can drastically transform the tax administration. We cannot, however, ignore those sceptics who say that the TTRA is essentially an exchange from the old structure and that it ultimately will not address the challenges of the current system. Only time will validate either point of view, but what cannot be disputed is that, in the face of declining state revenue, the current tax regime is unsustainable.
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