By Financial Analyst Joel Bhagwandin

THE central focus of Ram and McRae’s budget criticism (not analysis) was the inadequacy of the cost of living (COL) measures according to Ram, although the analysis provided by the firm failed to demonstrate by way of quantifying the measures contained in the budget.

Contrary to Ram’s view, however, the COL measures, altogether would amount to nearly $300 billion annually based on my calculations, including foregone revenues to the treasury. This conservatively estimated sum represents 26 per cent of the 2024 national budget, 110 per cent of the sum to be withdrawn from the Natural Resources Fund (NRF) to partially finance budget 2024, and about eight per cent of (2023) GDP. Moreover, it equates to an annual subsidisation of $1.5 million per household for household expenditure.

Yet, Ram & McRae opposes the capital spend in the budget, failing to realise that the capital projects are necessary to build out the supply side (productive output of goods and services) capacity of the economy, so that self sufficiency can be achieved in some areas (e.g. the food security agenda) and equilibrium prices in the medium to long term.

The accounting firm’s budget focus review questioned whether the subsided inflation rate reported for 2023 of two per cent is credible, which came down from 7.2 per cent that was reported for the previous fiscal year (2022). This contention was framed in the broad context of cost of living. Nonetheless, this is an uncomplicated error committed commonly on the part of many commentators and the political opposition―that is, to conflate inflation with cost of living.

Although inflation and cost of living metrics are related, these are two different measurements, whereby cost of living measures price increases for an expanded basket of goods and services versus the consumer price index (CPI).

Turning to tax revenues, Ram & McRae budget review asserted that tax evasion by professionals have “gone wild”. This is not only bizarre, but inexplicably ignominious on the part of Ram and McRae. Be that as it may, I am not saying that tax evasion is not a reality, but for a professional accountant to draw such conclusion by merely looking at the downward trend in tax collections from the self-employed category is an ineptly flawed deduction. Concomitantly, the advocacy for tax reform was echoed by the auditing firm, Ram & McRae.

For ease of reference, self-employed taxes declined from a position of $6 billion in 2019 to $4.6 billion in 2023, reflecting a 25 per cent decline for that period, or 6.25 per cent on average, annually for the period 2019-2023.
In the absence of hard evidence to support the aforesaid assertion, there are a number of plausible explanations for the decline, which were evidently ignored in the analysis by Ram & McRae.

On the one hand, the decline in taxes collected from self employed persons could mean that many sole trader type of businesses (self-employed persons) have grown over the years and therefore they have transitioned the legal form of their operation from a sole trader, to incorporating private limited companies. This is a reasonable presupposition given that the taxes collected from companies more than doubled from its 2019 position of $54.3 billion in 2019 to $139.4 billion in 2023.

With that in mind, it is an established fact that since 2020, the dynamism in the business environment―driven in part by the multinational companies operating in the oil and gas sector, necessitate the transformation of many sole trader (unregulated) businesses to improve their operating standards, management, and accountability, in order to be competitive and remain going concerns.

In addition, another reason why sole trader businesses are transitioning to incorporated companies is because international companies are not comfortable entering into any type of business arrangement with sole traders, given the lack of accountability and often, poor management, and standards altogether that characterise this type of business form.

On the other hand, regarding the issue of tax evasion, tax reforms do not and would not solve tax evasion problems. For the average person, there is tax evasion, which is a criminal offence, and there is tax avoidance, which is not necessarily a criminal offence.

In fact, accounting firms that offer tax advisory involve advising businesses of ways in which they can structure their operations to avoid incurrence of maximum tax liability.

Notwithstanding, I do believe that to minimise tax evasion there needs to be some form of reform. In this respect, the first reform that needs to be considered is the institutional reform of the Institute of Chartered Accountants of Guyana (ICAG). It should be noted that pursuant to the Institute of Chartered Accountants of Guyana Act (1991), the ICAG is a self-regulatory body of the accounting and tax profession Guyana.

It is time now that the legal and regulatory environment within which accounting firms operate be reformed.