PwC: T&T’s tax regime needs to be updated

 

 

“They came to people and said they were disbanding what they knew and introducing something new and although there was an attempt to give people an overview of the facts, people wanted to know how it would affect their bottomline and that was not forthcoming. People need to contribute to the facilities they want, like better roads and lighting, but people know what they are contributing and what they are contributing it for,” she said. She also referred to the problems of the old tax regime. “Under the old system, the valuations were not done properly, so some people living in what is considered to be prestigious areas were paying less land tax than in other areas because they are newer and assessed more recently. Another problem is how do you value property? With respect to people involved in industry and manufacturing, their valuations of the property involved plant and machinery but the legislation did not make it clear how that was to be valued. So the BIR took the view that they would choose the values advantageous to them, which would be replacement value. So it really made a way to rate the value of land and buildings so that people are paying a reasonable amount,” she said.

She also suggested a different way in which valuations are done. “Basing the rate on rental value does not seem to be where the world is going, they seem to be more on capital value so that is something we may want to consider,” she said.

 

 

Tax incentives

She also suggested that the Government do more in terms of tax incentives to encourage foreign energy companies to deepen their involvement in the local energy sector. “I expect to see initiatives that seek to improve and increase revenue. We have not been successful in getting investors to develop our resources that would benefit us more. The natural gas and petroleum is extracted and very little production or manufacturing is done here. I would like to see more of it done here. I think that we need to encourage them in terms of how we negotiate contracts and secondly, in terms of taxes,” she told the Business Guardian on Tuesday at PwC’s office in Port-of-Spain. She recommended that incentives be given to multinationals to stay until they reach the downstream stage. “I suggested that the petrochemical sector pay a higher rate of tax than everyone else. Maybe what we can consider is give a credit to petrochemical entities that wish to stay to produce beyond the first phase. So they pay 35 per cent to start with. If the Government tells them they stay until the stage where they produce plastics, they would then get a credit in the future against the taxes they would have paid in excess compared to what everyone else pays. So they pay 35 per cent at phase one but at phase two they get a credit of ten per cent against that and come down to 25 per cent. So that would encourage them to stay and produce more.”

 

 

She said increasing taxes should be a last resort. “It seemed to me the aim of the previous Finance Minster Winston Dookeran was to increase the rate of taxes and generate more income. I think increasing tax rates should be a last resort. We should be in a position where the tax rate is reasonable. I think we should start increasing enforcement. I think if we collect taxes from everyone who is liable to pay taxes we would be in a much better portion. This enforcement would be monitored by an efficiently operating Board of Inland Revenue (BIR),” she said. Last November, BP agreed to pay T&T $1 billion in taxes they owed the country, after talks between BP’s CEO Robert Dudley and Prime Minister Kamla Persad-Bissessar at the T&T High Commission in London. West believes that legislation that outlines how energy companies should pay taxes is subject to interpretation. “As far as I am aware, the energy companies pay their taxes. Because taxes are based on legalisation and the legislation can be interpreted in different ways. The energy companies may choose to interpret it in a ways that benefit them. The way that the BIR may choose to interpret the legislation may be in a way to benefit the country. It is not that they are seeking to evade taxes but if there is something in the legislation that allows energy companies a particular deduction or particular relief, they will take advantage of it. If you do not want them to have that relief, you tighten up the legislation.” She said sometimes the BIR is not clear on how legislation is to be interpreted.

 

 

She said former Finance Minister Dookeran increased an initial allowance that a manufacturer may claim in the year that he first puts his assets into use and this allows the manufacturer to claim 90 per cent of the cost of each asset used in his trade. They are also entitled to wear and tear: plant and machinery gets wear and tear of 25 per cent. “So if you increase the allowance of 75 per cent to 90 per cent where it is now  and you do not adjust the 25 per cent allowance, it suggests you will not get more than 100 per cent. So you have an apparent conflict between the two entities, the BIR and Parliament and that needs to be sorted out. So if one of the energy companies decides it will claim 90 per cent and 25 per cent, the BIR may say you are doing something wrong. But is the energy company doing something wrong? So it is how it is interpreted.”

In their budget submission to the Ministry of Energy last week, the Energy Chamber sought increased capital allowances, increased supplemental petroleum tax (SPT) allowances, group tax relief, exploration incentives and the elimination of value-added tax on oilfield equipment.

 

 

Gas subsidy

West believes that removing the gas subsidy will increase the cost of living in T&T. It has been estimated that the fuel subsidy will cross the $4 billion mark by the end of 2012. “I know the gas subsidy is expensive and if the country is looking to save money it is an easy target, but I think that comes with so many problems. That too should be a last resort because once you remove the subsidy, it will lead to an increase in the price of transportation and everything, like the price of goods and services and inflation, will be affected. The subsidy is one way in which all the citizens benefit from our resources. It also attracts people to come here to work and invest and makes the cost of living a little more bearable than other countries.” She said if the tax authority had a better sense of who and how much taxes they are supposed to collect, then they would be able to know how much of the subsidy could be reduced. “There has been a suggestion that you do it through a credit system and you have people pay the full rate for the energy and gas and then they get a rebate when they file a return, which means they would have to file a return so you get them in the tax net. But then you are talking about people who cannot live now paying a higher cost of transportation. I do not see how giving a credit at the end of the year will save us from the escalation in inflation  from the removal of the subsidy.The focus should really be on more efficiency because we are being asked to pay for inefficiencies.”

 

 

Reforms

She said T&T has a “good tax system” but the legislation needs to be updated. “We have a pretty good tax system, it is not progressive in terms of having several rates, but it does result in paying more tax on the income you earn. It has been simplified and there is little room for manoeuvring. The focus should be on tidying up where we are. There are loopholes that need to be fixed. Some of the rules are old and need to be modernised. “Only those employees who were higher income earners were taxed on things like cars and everything other than salary. The definition of higher income earner, $9,600 a year, when that was introduced decades ago that was fine, but now it encompasses everybody. That needs to be revisited.”

She called for reforms that would strengthen the BIR as an institution. “There are other areas we need to focus on, the tax administration is a problem. There are people in the tax administration who are doing their best to ensure that is done. It is understaffed, the resources are not what it should be. The accommodation is demoralising.The financial complex on Edward Street has been constructed to move them to and I do not know what is happening with that. “They are working in a system where they are promoted based on seniority rather than merit. They can easily get better jobs in the private sector and so their good people tend to be pulled away and demotivated by the fact that they have to wait on their seniors before they can move (up). Remuneration, resources and accommodation are three things that need to be addressed.”