The tax hammer is too heavy

Aug 22, 2016 Features / Columnists, Peeping Tom, http://www.kaieteurnewsonline....hammer-is-too-heavy/

Taxes are necessary to administer a country. But it is not the need for taxes that is in dispute as much as the methods that are used to collect it.

The government is taking an unenlightened approach to tax collection. It is trying to increase revenue collection by increasing licensing fees (a form of tax), shift the tax burden increasing to the agricultural producing areas of Guyana, increase taxation to regions and reduce incentives (known as exemptions) to  investors.

At the policy level and at the operational level, we have an approach to tax collection that is outdated and which will result in poorer rather than higher levels of tax collection.

The productive sectors are where the bulk of the taxes in any country originate. Taxes are collected on both the production and the consumption side of an economy but if there is no production, then there will be no goods and services on which to tax consumption.

The emphasis has always been on encouraging taxes on consumption and keeping taxes low on the production.

In almost all countries, agricultural taxes are low. If local taxes on agricultural taxes were high, it would destroy the agrarian economy.

The government’s decision to employ a regional strategy to taxation is effectively a move to increase taxation on agriculture. It is based on the premise that farmers make a lot of money and are not paying their fair share of taxes.

Well, if farmers are taxed more than they are at the moment, it will reduce the monies they have for replanting. A great many of them will go bust.

The monies that farmers earn have to go back as capital into the next crop. It is not all profits but some wise person has this idea that when you subtract a farmer’s cost from his earnings after the crop, this is his income and therefore that income must be taxed.

But they seem to forget that this ‘income’ has to be used to go back into production.

Small farmers have a simple accounting system. They start with a sum of money. They use that to plant.

They reap their crops. From the money earned from the sale of their produce, they take out the capital for the next crop. The remainder is used to pay their workers, to repair their machinery and meet their personal expenses.

In order to avoid having to be crippled by taxes small farmers will now have to go to accountants – who will charge them a jewel and a crown – to be able to separate their capital and maintenance costs from their income. Some of them cannot afford this.

How much do you think a small farmer earns from planting less than 10 acres of rice for three months after taking out expenses? Not more than fifty thousand dollars. You tax that now, he cannot afford to feed his family.

Production costs are going to increase for farmers. The government has introduced taxes for earth moving and earth clearing machinery.

Those who have the machinery will not bear these increased costs, they will pass this on to the farmers to whom they rent the machinery. These small farmers will have to return to ox and plough to prepare their plots for cultivation.

The government is further crippling the production sector by reducing tax exemptions. The government is under the false impression that these exemptions were a benefit that was being passed on to the beneficiaries.

The reality is that without the concessions there will be no investments because if investors are not given the incentives, they will not invest.

The concessions are used to reduce the initial outlay required. They are also used to reduce production costs. The reduction of exemptions will discourage rather than encourage investment. This is the reason why the government has not had any single major investment since it took office.

This is why the Chinese are scaling back their investments. The government’s tax policies are unenlightened.

The other mistake that the government is making is that they are punishing people, with large penalties and fines, for either not paying their taxes or not paying them on time.

This is outmoded method of encouraging increased tax collection. It resembles what the GPL does. Instead of calling up its customers and trying to encourage them to pay their bills, GPL sends their disconnection crew.

The penalties for not paying or late submission of taxes are too punitive. When those penalties accumulate, even if people wanted to pay, they cannot afford to pay. They prefer to declare bankruptcy or skip the country.

There has to be greater encouragement given to compliance. The government should be encouraging rather than punishing people who do not pay their taxes or pay them late.