Level the Tax Playing Field (Part 2)
The level of interest and penalties that can be imposed for non-payment of tax is perhaps the area of greatest obvious inequity in the tax collection system of the country. One example of this imbalance can be found in the Value Added Taxes Act, where if a taxpayer owes an amount to the BIR, that amount bears a penalty of 8 per cent of VAT outstanding and also suffers interest at the rate of 24 per cent per annum. This in an environment where the Central Bank’s repo rate is 3.5% and the prime lending rate is in the region of 8%. The BIR has the right, at its discretion, to waive such interest and penalties but its criteria for doing so is not transparent, such that a compliant taxpayer that has taken a filing position based upon a difference in interpretation of the law, may find himself in a situation similar to the non-compliant person. We wish to stress that we are not suggesting that the BIR is unfair or unreasonable in its dispensation of waivers but rather, merely that the relevant factors considered are not openly presented, thereby creating great uncertainty of outcome.
More striking is that where the BIR owes a VAT registrant refunds, as has reportedly been the case in the past year, the BIR faces no penalties for failure to pay over monies due and is only required to pay interest after a period of 6 months has expired from the time the money became refundable at the rate of 12 per cent per annum. Further, the BIR is entitled to offset any refund due against any other taxes owed by the taxpayer, further the offset possibility is not equally available to the tax payer. The most recent tax amnesty announced by the Government goes a long way in temporarily redressing this imbalance but a more permanent solution that adjusts the level of interest on both sides to mirror more closely market rates plus a few percentage points and a more transparent system of waivers based upon fair and reasonable criteria, such as genuine uncertainty in the tax law, would also be welcomed. By way of example, in the United States, interest for underpayment of tax is currently computed at rates ranging from 3%-5% over the federal short-term rate. In addition, certain penalties may be waived where a tax payer can show that it had reasonable cause and acted in good faith and the factors relevant in this determination are laid out openly by the Internal Revenue Service.
Perhaps, the above imbalances would be tolerable if the taxpayer was allowed timely and unfettered access to the Tax Appeal Board as the first independent arbiter of matters between itself and the BIR. Unfortunately, due to a series of missteps the Tax Appeal Board was asked to vacate its Court facilities in the Hall of Justice in 2007 and has since moved on to at least two different locations before permanently locating at its current premises in Frederick Street. During this period, which can be measured in years, the Board has sat sporadically and has had limited access to its library and records rendering it incapable, in many instances, of producing written judgements. Due to delays with outfitting and other security related matters, the Court has not yet reopened this year and when it does it is not certain how large a backlog of cases and judgements it would be required to process and how long these would take to deliberate upon in order to bring its outstanding matters up to date. In the intervening period, taxpayers have had to endure tremendous uncertainty of outcome involving tax disputes with the BIR and the prospect of continuing interest and other costs until these matters are resolved. Unfortunately, this deterrent in some instances, has led to taxpayers settling with the BIR on matters where the taxpayer had a reasonable case, but was unwilling to risk prolonged uncertainty involving its financial affairs. This has no doubt emboldened the BIR to make further assessments.
Taxation is imperative to the proper functioning of the Government of Trinidad & Tobago. As such, the Trinidad & Tobago Chamber of Commerce stands behind the Minister of Finance’s post amnesty enforcement objectives and urges all of its members to comply with the tax laws of the country. In fact, the Chamber’s Code of Conduct which every member has to sign on to, requires them to obey at all times the laws of Trinidad and Tobago both in letter and in spirit. The business community should embrace all attempts by the BIR to engage in frank and open dialogue with a view to increased cooperation and better tax enforcement. At the same time, we feel compelled to identify the obvious inequalities in the current system and urge the Government to look into some of these imbalances with a view to simply leveling the playing field. This further endorses our call for the formation of a National Tax Policy Committee, a recommendation put forward by the Chamber to the Minister of Finance, and on which more will be written at another time.
