THE ATTEMPT by the Commissioner of Income Tax to treat loans from the Cigarette Company to its parent, the Carreras Group, as dividends retroactive for six years, subject to income tax, is causing quite a stir in commercial circles. The validity of this treatment is a technical matter which has been challenged by the company but the staggering amount of the claim $5.7 billion has caused us to wonder if penalties in force for non-compliance with certain laws are not so disproportionately huge as to be counter-productive.
Government, in haste to tax its citizens, seems no longer to heed the call of justice that the punishment should fit the crime. We hold no brief for delinquent taxpayers but we believe that natural justice is violated when penalties for what, in many cases can be honest mistakes, is so great as to bankrupt the transgressor.
In the Carreras case, the amount of income tax in arrears claimed by Government, even in assuming the claim to be valid, is some $2.1 billion but the penalties imposed amount to $3.5 billion. In the case of the recent Privy Council ruling against Town and Country Resorts Ltd., the original amount in dispute was some $13 million but has now climbed to perhaps more than $120 million as a result of penalties and interest.
In civil contract law, the courts will not enforce a penalty. Thus, in a construction contract the parties set out what are termed "liquidated damages" i.e. an agreed amount to approximate actual damages caused by default. Some aspect of this general legal principle should mitigate the Government's appetite for penalties.
The present system builds up so much pressure that to prevent an explosion and provide a release valve to let off steam, the Minister of Finance, in his sole discretion, is authorised to grant waivers on a case-by-case basis. With some other minister in office, this could open the door to corruption. And history has shown that such ministerial discretion violates a generally acknowledged rule of good governance. Legislation should be reasonable, definite and certain so that all players know the rules and can play by them without fear that the referee will invent new ones while the match is still being played. The present uncertainties in our approach to legislation are significant factors in discouraging foreign investment.
Of course, politicians cherish such discretion which bestows on them a twofold sense of power power to make a law and power to manipulate its enforcement as they see fit. We think it highly likely that State power is being abused in the matter of penalties and we urge a review so that a more equitable regime may prevail.
THE OPINIONS ON THIS PAGE, EXCEPT FOR THE ABOVE, DO NOT NECESSARILY REFLECT THE VIEWS OF THE GLEANER.
