Robert Buddan
IN 2004, Finance Minister Omar Davies said that Jamaicans owed the Government $15 billion, 80 per cent of which was unpaid General Consumption Tax (GCT).
Scholars of corporate social responsibility say that paying taxes is the most fundamental responsibility of good corporate citizenship and for making social contracts work. Taxes are vital to the
development and maintenance of physical infrastructure and the market economy.
In 2000, the then head of the Jamaica Exporters Association, Beverley Lopez, said much the same thing, that many of Jamaica's
problems arise because Jamaicans ignored the law and businesses avoided taxes while blaming
government for not fulfilling its obligations.
Prime Minister Patterson has called the heads of public sector entities together to report on what they have learned that can close
the gaps that lead to public sector corruption.
Now that Mrs Lopez is president of the PSOJ and a prime mover in the Partnership for Progress, she should lead the private sector to do the same.
Directors of companies, auditors and financial managers should hold a conference to identify and
plug the loopholes that allow
white- collar crime.
But they should also make a commitment to pay their taxes. If taxes were being paid we would not have a fiscal deficit and we would not have to pay increased GCT to fill the gap in the budget.
This not only hurts consumers but companies as well. When
companies pay their GCT, they are competing with companies
that do not, and this puts them
at a disadvantage.
WHITE COLLAR CRIME
The private sector agrees that crime hurts the economy and the World Bank believes that it costs the economy as much as four per cent of Gross Domestic Product (GDP), but this probably does not include the cost of white collar crime.
Dennis Morrison and Kingsley Thomas believe that if we could contain crime the economy could grow above eight per cent. But if companies do not pay their taxes government will not have enough to pay policemen.
It is not enough to say that
government should collect more revenue, and it should. Those who owe should do more to pay. It just makes good economic sense to do so.
Supporters of good corporate governance realise that better
managed companies attract foreign and local investments because, obviously, investors do not
want to invest in badly managed companies that might fail.
In South Africa, white collar crime costs the economy more than four billion rands per year, more than the country earns from tourism.
It is now a criminal offence for company directors or persons in positions of authority not to report corruption (fraud, theft, forgery and extortion) to the police.
Corporate crime is not just a Jamaican and a South African problem, and crime in general is not only caused by drug dons and criminal gangs.
PricewaterhouseCoopers
reported that 70 per cent of
companies in developed countries suffered from white collar crime, and managers were involved
in 50 per cent of these.
Mike Surridge of the revenue department has once again spoken out about the prevalence and the costs of corruption to the Jamaican economy.
Billions of dollars, he said, were lost to foreign exchange manipulation in the 1990s, and billions more are lost each year to under-invoicing imports.
Yet, the Consumer Affairs Commission is attacked if it makes these claims, and the Minister of Finance is called arrogant if he dares to suggest that the business sector has to take responsibility for some of its failures.
The culture of compliance in tax and fee-payments is weak in Jamaica and elsewhere, and
therefore, the rules must be enforced, not just by government but by companies themselves.
PAYING TAXES
Discussions of corporate social responsibility around the world have debated virtually every aspect of the issue except the payment of taxes the area where good
corporate citizenship is most tangible and most important.
PricewaterhouseCoopers (2003) identified poor corporate social responsibility as an area of concern for investors, especially corruption, nepotism, collusion, inadequate disclosure, inadequate enforcement of rules, insufficiently transparent financial disclosures, and a
lack of clear separation between ownership and management.
Even so, it neglected to point to the problem of tax avoidance.
This particular problem arises because of two kinds of thinking.
One is that companies believe they have the right to avoid (not evade) taxes as much as possible.
The other is that companies believe they have a responsibility only to their shareholders to make as much profit as possible.
However, when companies avoid taxes they become economic free-riders, enjoying the benefits of corporate citizenship without accepting the costs, causing market distortions and passing on the tax burden to individual citizens.
In the United States and Britain, the share of corporate taxes paid has declined over the years relative to the income taxes paid by
individuals. Developing countries can ill-afford this pressure on their small middle classes.
The view that companies only have an obligation to make profit for their shareholders, as was recently claimed by a Jamaican banker, is out of step with the
values of corporate social
responsibility.
Good governance means that governments have a social responsibility to voters. Good citizenship means that citizens have a responsibility to their society.
There has been no natural
philosophy of good corporate or business citizenship.
SOCIAL RESPONSIBILITY
Even today, good corporate
citizenship is sometimes dismissed cynically as good public relations (providing money for community projects and scholarships for
education) but which do not alter the basic structure of economic justice between owners/managers, workers, governments, and consumers.
However, the new thinking by the European Union, the United Nations and the World Bank has moved beyond the traditional
for-profit-only conception of
corporate responsibility.
The EU sees corporate social responsibility as an integration of social and environmental concerns with business practices.
The U.N. has developed a Global Compact with more than 1,000 multinationals to work towards human security in its broadest sense.
Indeed, the World Bank's working definition is that corporate social responsibility is the |commitment of business to contribute to sustainable economic
development, working with employees, their families, the local community and society at large to improve the quality of life in ways that are both good for business and good for development.
The profit-only motive cannot be a guide to business as usual. Yet, the EU, UN and World Bank do not stress the obligation of
companies to pay taxes.
Jamaican taxpayers and public sector workers under the Memorandum of Understanding (MoU) feel that, important as it is to balance the budget, they are being asked to make too much
sacrifice while corporate Jamaica pays managers uncompetitively high salaries, live off high-interest government paper, keep lending rates artificially high, and are not willing to pay back to society out of the profits they make, especially those institutions that have been bailed out at great fiscal and social cost to the society.
CORPORATE GOVERNANCE
It is true that the idea of
corporate governance is catching on in Jamaica. The private sector has a proposed code on corporate governance to take effect in 2007.
The code fits the OECD definition of corporate governance the system by which business corporations are directed and controlled. Nowhere, however, are issues of tax payment, corruption, and social responsibility addressed, and these are the real issues of corporate social responsibility.
Trevor Munroe's (2003) study for Transparency International made recommendation for the 'enforcement of anti-corruption law against offenders from high society in the public and private sector" as one means of reaffirming equality before the law,
undermining popular conviction that the highly placed corrupt are untouchable.
The Partnership for Progress, (inclusive of the PSOJ and JCTU), has pledged to enhance corporate social responsibility and improve the efficiency and fairness of the tax system.
This must mean getting rid of the free-rider problem, the major one being tax delinquency so that the burden of development can be equitably shared.
Robert Buddan lectures in the Department of Government, UWI, Mona. You can
send your comments to
robert.buddan@uwimona.edu.jm or infocus@gleanerjm.com.
