By Kenton Palmer, ContributorTHE INITIAL proposal by the Ministry of Finance of a four per cent cess on imports recoverable through income tax payable as a means of raising $3.5 billion from those "who disappear off the income tax radar screen" was a touch of genius. This would have an impact of $130 million in carrying cost on companies that are profitable and tax compliant while the balance of $3.37 billion would be borne by those who continue to evade the tax net.
The private sector organisations claimed that many companies were not profitable and therefore this cess would be a direct cost on those firms further exacerbating their financial situation. The private sector as a compromise recommended to the Finance Ministry a two per cent user fee which would be non-recoverable. The resulting impact is that companies that are tax compliant would incur an additional cost of $1,620 million while those who are non-compliant would see a reduction of a similar amount. (See table below)
In brief, the Finance Ministry devised a plan to widen the tax net to yield $3.5 billion from the non-compliant companies. The private sector, in response, proposed and the Ministry accepted a two per cent "user fee" across the board. The plan to widen the tax net has been aborted and once again those who observe the laws of the country are further penalised to compensate for those who are determined to do otherwise. Has the private sector impaired its credibility?
If we took the Finance Minister at his words that the intent was to target non-compliants, then, morally, he would be obliged to look at those who were compliant but were experiencing losses. There could have been two simple ways of dealing with this issue:
a special window to refund the cess to those who are not able to make an offset, or
the introduction of an Income Tax compliant certificate.
Why did the private sector organisations not pursue these options?
The Finance Minister is not without blame. Firstly, the Government should not have found themselves in a situation where midway in a budget presentation they are conducting negotiations with interest groups. This process should have taken place long before now so that when the budget is presented it is "final and binding". Secondly, the Finance Minister has abandoned his tax net widening concept because he got the $3.5 billion. What message is he sending here?
Without fear of contradiction, those who prefer the four per cent cess are:
A. Compliant with the income tax requirements and/or
B. Able to offset the cess payment against income tax payable.
Those who have a preference for the non-refundable two per cent user fees are:
C. Unable to offset the cess because of losses and/or
D. Non-compliant and therefore two per cent charge is better than four per cent.
Certainly, it is not a difficult task to deal with those falling under C to ensure that once they are income tax compliant they are not adversely affected. The true winners therefore are those non-compliants and that is sad.
RESIGNATION TENDERED
The president of the JMA has tendered his resignation, as the members attending the meeting of the Board last Wednesday voiced their concerns that the president and vice-president did not act in accordance with these instructions when he signed the document supporting the two per cent user fee.
Whilst I cannot speak to the instructions given to the president and vice-president prior to the signing, no member present at that meeting spoke of a preference of the cess over the user fee. There is an obvious disconnect here.
Unfortunately, those persons with whom the President consulted and apparently supported the user fee were not present to defend his action. The President stood alone. Clearly, the president lost touch with his constituency and had to pay the price.
There is and has been for a very long time serious conflict of interest between the JMA and the PSOJ and to a lesser extent the JCC. The favoured position by the Government of the distributive and financial sectors have weakened the manufacturing sector and likewise its association, the JMA. It is not by chance that the trade deficit with the other Caribbean countries keeps growing annually. The manufacturers associations in Trinidad and Barbados have pride of place.
The JMA needs to redefine itself and undergo serious restructuring before it gets too actively involved in any umbrella organisation that regards it as nothing more than the whipping boy.
