THE EDITOR, Sir:
IN ORDER to correct certain inaccuracies and misconceptions concerning the imposition of tax penalties, we feel compelled to respond to your editorial which was contained in The Gleaner of Thursday, August 7, 2003.
The referenced editorial expresses some discomfort with the basis on which penalty and interest charges relating to outstanding Income Tax and General Consumption Tax (GCT) liabilities are calculated. However, it is important to appreciate that the Government's projected expenditures are predicated to a large extent on taxes being accounted for and paid when they are due. Accordingly, when expected tax inflows are not forthcoming, the Government must make alternative arrangements to fill the resulting revenue gap - usually by borrowing in the local or overseas financial markets. As you are no doubt aware, there are considerable interest and other costs associated with these loans.
Additionally, it should be noted that corporate or individual taxpayers who fail to account on a timely basis for taxes which are due, enjoy a significant financial advantage when compared to those taxpayers who are scrupulously faithful to their responsibilities under the various tax laws. Equity considerations therefore demand that commercially meaningful penal charges should be imposed in cases of non-compliance with the legislative requirements, for the following reasons:
(a) To compensate the Government for the costs associated with financing the revenue shortfall;
(b) To remove the unfair advantage which the non-compliant taxpayer would otherwise enjoy.
(c) To take account of the fact that a dollar today is worth more than a dollar tomorrow.
While we do not intend to enter into a discussion of the specific cases mentioned in the editorial we would, nevertheless, like to state a few pertinent facts. Sections 41(1), 41(2)(a) and 41(2)(b) of the Income Tax Act deal with the treatment of taxes owed to the Government in these circumstances. A penalty of 50 per cent per annum is applicable. Thus, over a period of six years, for example, the outstanding liability could amount to billions of dollars.
It was also misleading and incorrect to assert that a tax obligation of some $13 million has now climbed to more than $120 million as a result of penalties and interest. The relevant amount of interest and penalties is an accumulation of the unpaid charges over several years and also represents amounts incurred but unpaid on taxes which have been liquidated over the period.
I am, etc.,
SHIRLEY TYNDALL
Financial Secretary
Ministry of Finance & Planning
30 National Heroes Circle
Kingston
