IT is the view of many people that politicians make lofty promises during an election campaign but after they have been elected those promises are forgotten.
This is a generalisation that has been passed down from generation to generation.But this may not be true as there have been many politicians who honour and deliver on their promises. In Guyana, our late President Dr Cheddi Jagan is a notable example of such a politician.
In more recent times we have seen our new President Donald Ramotar already honouring and delivering on some of his election promises. One such promise he has already begun taking action on is the review of our current tax regime.
In this regard, the President has disclosed the names of persons whom he recently nominated to a panel that will lead the review process.
They are chartered accountant Ronald Alli, economist Dr. Cyril Solomon and, prominent businessman Clifford Reis.
“I hope that they will begin their work shortly… the terms of reference have also been completed and sent to them…,” President Ramotar said.
The manifesto of the President’s party that was launched on October 23 promised to examine options for making the tax system more family friendly, including, through personal income tax relief conditional on the number of dependent children.
It is highly commendable of the President to act so expeditiously on such an important issue which is vital to our socio-economic development and future prosperity.
One of the most commonly discussed issues in economics is how tax rates relate to economic growth. Advocates of tax cuts claim that a reduction in the tax rate will lead to increased economic growth and prosperity. Others claim that if we reduce taxes, almost all of the benefits will go to the rich, as those are the ones who pay the most taxes.
The debate on the best tax regime has been an ongoing one but what is clear is that every country has its own socio-economic peculiarities and therefore no successful model in a particular country could be applied wholesale in another country, albeit relevant aspects of the model could be applied.
In Guyana the business community has been arguing that corporate taxes are too high and this is a disincentive for entrepreneurs to re-invest and expand their businesses and provide better wages and working conditions for their workers. In fact, a study carried out by the Inter-American Development Bank (IDB) a few years ago showed that our corporate taxes are the highest within CARICOM and therefore to some extent vindicates the contention of the local business community.
Concerns have also been raised that our VAT rate of 16% is too high and is contributing to a higher cost of living, which is putting pressure on the lower-income section of the population. It is expected that the tax review panel set up by the President will pronounce definitively on this matter.
From the labour front, trade unions are contending that income tax (P.A.Y.E) rates for workers are too high which is discouraging them from working overtime as a huge chunk of the money earned goes back in taxes. The trade unions are also calling for a higher income tax threshold which if implemented would increase the disposable income of workers.
What is of great concern too, is that a significant proportion of the working population are escaping the tax net or are not paying their fair share of taxes. On this issue it would be interesting to see what recommendations the panel would make.
It would be of great benefit if this panel could conclude its work in time for its recommendations to be considered for the 2012 national budget which most likely would be presented within the first quarter.
Perhaps, this was the thinking of the President when he acted with such expediency in appointing the review panel.