Robert Buddan
THE EXPENDITURE budget presented by the Minister of Finance does what I hoped it would do.
Rather than punishing taxpayers by imposing higher taxes to fill the hole in revenue left by tax evaders, it has targeted those artful dodgers to get what is due from them. A new administrative campaign in tax collection over the last five months produced results above target. This is promising.
However, government seems to have stopped short of a 'crusade' for tax compliance in favour of a campaign for tax collection, relying on the traditional philosophy of facilitation instead of criminalisation.
MORAL SUASION
This means that it wants to make it easier for people to pay taxes rather than making it harder for them to avoid it. It believes process and moral suasion will work.
This is how it has chosen to interpret the International Monetary Fund's (IMF) recommendation for 'vigorous' pursuit of taxes. Our long history of tax evasion makes me wonder if this 'soft' method will work.
I would hope that supporting legislation will be brought to include provisions for municipal revenue courts, criminalisation of tax evasion, and more support for the fraud unit of the tax administration department, and for this legislation to be brought early in the legislative year since the credibility of the budget rests on the revenue targets.
The case for hard measures has been made. Minister Davies said that donor agencies want to see that client countries have effective tax compliance measures in place and are not trying to use the resources of other countries by avoiding unpopular tax collection at home.
Dr. Davies also pointed out that international grants are becoming less and smaller so that countries have to stand more and firmer on their own. The IMF, too, sees the need for vigorous revenue collection.
John Issa says that, since 1973, he has been pointing to Jamaica's unacceptably low compliance, calling it a national disgrace. The problem obviously goes back at least to the 1960s.
SOFT APPROACH
I have pointed to the low level of compliance in Jamaica and said that the problem requires stronger capacity to collect, not just taxes, but fines and fees.
Fines and fees for traffic offences, environmental violation, building regulation, noise abatement and criminal proceeds, do not have the necessary backing of legislation, investigation, appeal and collection.
Government's soft approach to hard revenue is contradictory. It prefers to treat many cases of non-compliance as neglect rather than willful evasion, relying on its arrears programme instead of the fraud unit of the tax administration.
The revenue crisis has less to do with how high or low taxes are, and more to do with willingness to pay and ability to collect. We have treated it in the reverse ability to pay and willingness to collect.
Taxes are quite high in the Nordic democracies (Sweden, Belgium, Netherlands, Denmark) and comparatively lower in the Anglo-American democracies (US, UK, Australia, New Zealand). Citizens in the latter still balk at paying. But in both cases, revenue collection is efficient. Citizens are not allowed to determine how much they will pay and when.
LAW WITHOUT COMPLIANCE
Simply making it a law for people to pay is not enough. Ten years after the points (demerit) system for traffic offences was introduced, the police said that 65 per cent of traffic offenders were delinquent. I cannot think of a case where someone has been arrested and made to pay a fine under the Noise Abatement Act.
The U.S. International Narcotics Strategy Report of March 2006 said that Jamaica had seized criminal assets in 2005 amounting to about $30 million. Yet, the assets alone of Donovan 'Bulbie' Bennett, the former don of Spanish Town, were reported to worth $100 million and we are still only doing an inventory.
That same report pointed to the 'significant black market for smuggled goods' as a means of tax evasion. We still do not have the Proceeds of Crime Act four years after it was promised. It is a rarity for residences and companies to be charged for littering, theft of water and electricity, and dumping waste into our rivers, gullies and sea. Despite the Transport Authority and Road Traffic Acts, there were 20,000 illegal taxis on the road in 2005 (although there is visible action on this).
SOFT GOVERNANCE
This situation has prevailed because governance in Jamaica has followed a tradition of talking tough and walking softly. It goes back sixty years. We have not been able to resolve a dilemma. Surveys have shown that Jamaicans want leaders who can be tough but compassionate. Incidentally, they also want leaders with strong religious values.
We have not been consistent about who we are tough with and compassionate towards. Our spending budgets are tough and tight but our revenue strategies are soft and loose.
Government admits that some cases of non-compliance are criminal and the result of willful neglect. However, the revenue department only plans more educational campaigns for these artful tax dodgers. Mayor Desmond McKenzie is angry with multinational corporations that don't pay advertising fees for billboards even after many notifications. But, rather than taking them to court, he said he would write to their parent companies. These are all forms of soft governance.
Soft governance has its place. We need to be compassionate and forgiving. We need to inform and educate the ignorant. We need to make processes easier. But, we can't have open-ended permissiveness. People will exploit it.
While waiting for Minister Davies' budget presentation on April 27, I watched a programme on what the American performer, Beyonce, had earned from records, concerts, films, and endorsements over the years. Clearly, she had to report her earnings and pay taxes on them and there is a system to make sure of that.
What American performers, actors, sportspersons, and CEOs earn is public knowledge. We can only estimate what our entertainers and sportspersons earn and our estimate is that they pay very little. That is soft governance. A Jamaican reader residing in the U.S. responding to my article last week told me of once earning interest of US$2.50 on a savings account. The IRS contacted him to say he had to pay a tax on it. That's hard governance.
HARD GOVERNANCE
The President of Northern Caribbean University, Dr. Herbert Thompson recently said, "We are a barely governable people." Folk history has it that Sir Alexander Bustamante said much the same thing in the 1940s or 1950s. They mean that we are not used to disciplined governance. This is as true for our private sector and corporate governance, our cultural sector and grassroots governance, as it is for the public sector and state governance.
Our new Prime Minister is well known for her compassion and religious values. But she also said she will be tough on family issues. Her campaign held a conference on law and order policies in January 2006, and Entertainment News reported: "Ensuring law and order as well as a properly functioning justice system will be the highest priority of a Portia Simpson Miller led government." She must be tough here, too.
People object to hard governance on the basis of hardship. Government must 'free up' and 'let off', they say. Government must make it known that when people do not pay taxes, fines, and fees, they are denying the state the ability to fix roads, deliver water, subsidise school books and lunches, provide cheaper drugs for the elderly, put more security in communities, expand HEART/NTA training, and lend more to small business. Tax dodgers are the ones creating hardship for the people.
Robert Buddan is a lecturer in the Department of Government at the University of the West Indies. Email him at robert.buddan@uwimona.edu.jm
