In resolving the present banking crisis, the Government of Anguilla is stepping in to save the depositors at the local banks from suffering a ‘haircut’, or loss of their deposits. The exact method that Government will go about doing this is not clear to us yet, but the one thing we can be sure of is that it will cost us money. So, we might as well start thinking about some of the least painful ways we can meet the cost.
In recent months, Government has introduced an innovative (for Anguilla) way to put pressure on taxpayers who have defaulted in their taxes. Government has introduced an administrative gimmick, a tax compliance certificate called a Certificate of Good Standing. [Never mind that the Certificate is ultra vires and would be struck down by a court if challenged. It is still a good idea, and only needs to be made legal by passing the required Regulation.] If you want to either sell or purchase a plot of land, you must pay Inland Revenue EC$50.00 and obtain a Certificate before your land forms will be accepted for registration. If you are an Executor of a will distributing the land to the beneficiaries, then both you and each of the beneficiaries must pay for and obtain a Certificate before you will be permitted to give them their devise or gift of land.
The Certificate certifies that you do not owe any Property Tax; Business Licence Fee; Water Rates; Lease tax; Accommodation Tax; Company Filing Fees; Tourism Marketing Levy; Interim Stabilisation Levy; or passed any dishonoured cheque payable to Government. Since (according to the Chief Auditor) Inland Revenue has no way of tracking most of the above taxes and levies, it is not certain how they arrive at a correct answer when they issue the Certificate. Maybe they just ask the taxpayer, and take his answer as the truth. Don’t laugh, most of government revenue collection proceeds on this system. But, I like the idea of a Certificate of Good Standing. It not only obliges you to go to pay your overdue taxes, it raises its own revenue.
I have some other suggestions for improving revenue collection. They are tentatively offered for your consideration. They are just my private, uninformed views. They may not all find favour with you. Indeed, you may have better ones.
1. Make the System Efficient
Begin keeping proper records. Government must insist that the Administration maintains proper records of receipts and expenditure in every Department. This has been a complaint of the Chief Auditor every year since 1976 when the Chief Auditor was first appointed. In the most recently published Chief Auditor’s Report, for 2011, the Chief Auditor explains at paragraph 4 why he cannot give Government’s accounts a clean auditor’s certificate. [If you have difficulty believing what follows, send me an emailed request to idmitch@anguillanet.com, and I’ll email you a copy of his extraordinary and damming report.]
The Chief Auditor writes that the Government does not maintain adequate records to ensure the completeness and accuracy of the figures reported for advances and deposits; loans made from the consolidated fund; arrears of revenue; and remissions, write-offs and settlements. What he probably means is that, in the past, a Minister, working through his Permanent Secretary, could make payments that are unauthorised, to friends and associates. He could illegally forgive and write off taxes for important people who have influence with him.
The Chief Auditor complains at paragraph 5 of his 2011 Report that Government does not comply with the requirements of the Finance and Audit Act in relation to approving reallocation warrants. What this appears to mean is that in the past a Minister, acting through his Permanent Secretary, could, as an imaginary example, take money approved by the House of Assembly for maintenance of schools and apply that money to some unauthorised project such as the opening up of an archaeological site as part of the marketing programme of a nearby privately owned hotel. Or, they could, as another imaginary example, divert funds from the Hospital to develop an unauthorised but vote-getting ‘food court’. The existing penalty for such illegal diversions of government funds, if it should occur, is not applied.
Due to our inadequate record keeping, the Chief Auditor complains that he has not been able to check the accuracy of Inland Revenue’s records relating to Property Tax, Interim Stabilisation Levy, Accommodation Tax, Communication Levy, Bank Deposit Levy, Environmental Levy, or Customs Duties. He could not be sure that any of these taxes and levies had been calculated, far less paid, in accordance with the relevant laws. If he could not be sure, how is our Inland Revenue Department going to be sure so they can issue a valid Certificate of Good Standing?
Make the system of payments to government more efficient. At present, it sometimes takes hours to pay customs duty. You should no longer have to stand in line to hand over cash to pay any tax for any government goods or services. You should be able to present your debit card or smart phone to a machine and the amount is instantly paid. This is the way payments are made all over the world today. If the little old lady wants to pay cash, let her give the cash to her granddaughter, and let the granddaughter do it automatically for her.
2. Collect Unpaid Taxes
Reactivate the Internal Audit Department. I am told (I don’t know how to find out if it is true) that most of the present Internal Audit officers spend all day sitting at their desks shuffling paper. If it is true, that means they no longer go patrolling government departments to check on whether all receipts are being properly receipted, as was done in the past. They no longer check to ensure that all payments are properly backed by vouchers and necessary authorisations. It seems from the 2011 Report of the Chief Auditor that there must be a whiff of truth in this.
The solution is clear. If Internal Audit is under-staffed, transfer in some of the under-utilised public servants from over-staffed Departments. Give each of them a quota of delinquent taxpayers to visit each day, to warn them of dire consequences that are about to flow. If the internal auditors are out of condition and not fit enough to travel about on foot to enforce the tax laws, supply them with bicycles. Send them to the gym. I don’t care. Just make them do the work they are employed to do.
Enforce all present and existing taxes. Before new taxes are imposed, Government must enforce the existing ones. No one is going to believe Government is serious about new taxes if some of the established hotels are not paying Accommodation Tax and no effort is made to collect. Prosecute some of the more delinquent taxpayers, as an example to the others. Ensure several of them pay hefty fines. Get a few of them, and their directors if they are companies, sentenced to jail time.
3. Make all presently voluntary taxes obligatory.
Property Tax in Anguilla, for example, is what is called a voluntary tax. If you don’t pay it, nothing happens. There is no fine or imprisonment for failing to pay. Inland Revenue merely adds on 5% interest. They make no effort to collect it. If you never go the Land Registry to find out if you owe any property tax, you will never know. You are free to die of old age never knowing.
Most houses in Anguilla are unvalued anyway, and their owners never receive an invoice for property tax. In my case, it took me monthly visits for three years before I could get the Valuation Officer to come out to my house and value it for the purpose of calculating and paying the tax. Few people would be so obsessive about paying tax.
I own an acre of bare, undeveloped land in St Kitts since it was given as a wedding gift. Each year I get an invoice posted to Anguilla by St Kitts Inland Revenue reminding me to pay my property tax. In Anguilla, there is no tax on undeveloped land, only on houses.
4. Increase Existing Taxes
Double the stamp duty on dealings land. Presently, only the purchaser of land pays. The purchaser pays the price to the seller, pays the stamp duty of 5% of the purchase price, and pays the lawyer’s bill. The seller gets the money and walks away scot-free. Make both the purchaser and seller pay stamp duty. If we abolish the fee on Aliens Landholding Regulation Licences (ALRL) then we can easily double the stamp duty under the Stamp Act. In St Kitts-Nevis, the stamp duty is 10%, down from a previous 12%, so increasing our stamp duty on land sales from the present 5% to 10% will not be arbitrary or unusual.
Past Governments have given away the ALRL fee on most Licences, so the fee raises very little revenue. The advantage of replacing the fee on Licences by doubling the stamp duty is that, while the ALRL fee is permitted by the Act to be waived by Government ministers, the stamp duty cannot be waived. It would take a law passed in the House of Assembly to waive stamp duty. Another advantage is that this 10% would flow from every sale of land, whether to a foreigner or to a local. It would bring in far more revenue than the ALRL fee does.
Increase import duty on all motor cars to 100% of the value. One hundred percent customs duty is the level in most islands of the West Indies. It is higher in some. The present level in Anguilla is probably the lowest in the West Indies. If you can afford to buy a Hummer or a Rolls Royce car, you can afford to pay the duty. It should not matter that some people will complain that they cannot afford to purchase their dream car. We already have as many cars on the road as the system can manage.
5. Impose New Taxes
Tax on restaurant bills. There is no restaurant tax in Anguilla, only in the USA. Some Anguillian restaurants presently cheat their customers on a regular basis by using US-printed restaurant bills which come with a line for “Tax”. The restaurant proprietor adds the 15% service charge on this line without crossing out the word “Tax”, or adding the words “Service charge”. The tourist then adds the gratuity of 15-20% to the final bill and the proprietor pockets that, sharing only the “tax” with his staff. Nothing goes to Government. The introduction of a real tax on restaurant bills will place no additional burden on tourists. Such a tax will, instead, keep restaurant owners honest. Food vans and small food vendors can be easily omitted by selecting the right words in the definition of the type of restaurant this tax applies to.
Tax all billboards and hoardings. The proliferation of roadside signs clutters and disfigures the appearance of Anguilla. It does not matter whether they are commercial, social, or charitable. They are all ugly and unnecessary. They could be banned as in Lanzarote, but there is no need to do so. Just tax them. Let the law provide that any advertisement, hoarding, poster, or billboard erected on any public or private land must pay a tax of $500.00 per year if it is below a certain size, and $1,000.00 per year if it is above that size. Eight by four-foot billboards should be $5,000.00 per year. The numbers of LIME and Digicel hoardings along the roads would soon come down, significantly improving the view on a drive around the island. An exception could perhaps be made for a sign affixed to the building which houses the activity being advertised.
Introduce VAT at, say, 20% to replace customs duty. Presently in Anguilla, the only tax on consumables is customs duty charged on goods imported into Anguilla. Locally-made goods, and all local services, are free of any tax. Anguilla is one of the few islands left in the West Indies that does not have Value Added Tax. Some countries have both VAT and customs duties, though most persons would agree that is unfair. VAT should be payable on all goods and services sold on Anguilla. In addition to goods, every lawyer’s bill, surveyor’s bill, medical bill, electrical bill, water bill, engineer’s bill, and architect’s bill, for a start, should be obliged to include VAT.
Start with the professions that are already computerised. Then, progress to the big stores and retail outlets that are already computerised. Gradually extend down to the smaller outlets, as the kinks in the system get ironed out. Place a hefty penalty for anyone caught, either not charging, or, worse, collecting it and pocketing it. Several hotels and rental villas do so at present with Accommodation Tax with impunity. They should be vigorously prosecuted.
If we use VAT to replace customs duties, customs officers will not be redundant. They can be put in the Inland Revenue and Internal Audit Departments to work on collecting taxes.
If we keep customs duties, then we should increase the level of duty on luxury and unnecessary items. We could easily double the duty on alcohol and tobacco. We should double the duty on all luxury items. If I can afford to order a case of champagne or import a Hummer car, I cannot be heard to complain about the tax.
VAT and customs duty are both optional taxes. If I don’t want to pay the duty and the VAT, I don’t have to. I am free to avoid both of them if I wish. I don’t have to buy the goods.
THE END
28 November 2015
