In delivering the 2009 budget, on September 22, 2008, then Finance Minister Karen Tesheira unveiled plans to establish a T&T Revenue Authority (TTRA) and a new property tax regime.
Mrs Tesheira told Parliament that the enabling legislation to give effect to the TTRA would be laid in Parliament early in 2009 and “the new organisation will be in operation by the third quarter of 2009.”
Of the proposed property tax, she said enabling legislation would have been introduced in the 2009 fiscal year with the property tax regime taking effect from January 1, 2010.
It is part of our recent economic history that neither the revenue authority nor the property tax regime was implemented in accordance with the schedules outlined by the minister by the administration led by the late Prime Minister Patrick Manning.
Both measures faced strong opposition from the then Opposition, United National Congress and the revenue authority faced strong push-back from the trade union representing public sector workers.
In delivering the 2017 budget, the current Minister of Finance, Colm Imbert told the Parliament that the Government was “moving full speed ahead” with the introduction of the TTRA and “we expect to introduce legislation for the establishment of a Revenue Authority in Parliament in the second quarter of fiscal 2017.”
Mr Imbert said that “an urgent priority in 2017” will be the introduction of an integrated revenue authority as well as other measures, as needed, to improve tax administration.
Improving tax administration was “an urgent priority,” according to the minister because “the weakening of energy tax collections and the need to boost domestic tax collections have exposed the weakness of our tax administration system.
“There is no avoiding the fact that there is considerable tax leakage in T&T and the Board of Inland Revenue could be collecting far more tax than it does at present.”
Of the property tax regime, Mr Imbert said that this would be implemented in fiscal 2017, at a flat rate of three per cent for individuals, based on the Property Tax Act 2009, with minor amendments to the Valuation of Lands Act.
“We have done much of the preparatory work needed to introduce a comprehensive property tax in 2017,” said the minister.
Will Colm succeed where Karen failed to implement the property tax and the revenue authority?
Firstly, it is quite likely that in 2017, Mr Imbert will face opposition from the same revanchist forces that were dead set against the introduction to both measures in 2009.
The TTRA legislation requires a special majority to be enacted and therefore requires the support of the Opposition, which will mean prior and meaningful consultation and a willingness to adopt some of the measures that are proposed by the “other side.”
The introduction of the authority also requires the agreement of the Public Services Association, which represents public servants, in terms of assurances of minimal job losses, enhanced separation packages and the retention of the PSA as the recognised bargaining unit. There will need to be prior and meaningful consultation between the Government and the PSA if the TTRA is to get off the ground.
But, more fundamentally, the economic circumstances in which T&T finds itself today are substantially different than the circumstances that Mrs Tesheira faced in the 2009 fiscal year.
In 2009, based on the assumption of US$70 a barrel oil price, natural gas at US$4 and projected GDP growth of 5.6 per cent, the finance minister projected that the country would receive $49.465 billion, comprising energy revenue of $19.924 billion and non-energy revenue of $29.54 billion.
As a result of the onset of the global financial crisis, which led to a sharp fall in oil and gas prices, as well as the collapse of the Clico/CL Financial empire, the government was only able to collect $38.993 billion, according to the 2010 Review of the Economy, some $10.47 billion less than originally projected.
In 2017, while total revenue is projected at $47.44 billion, only $37.7 billion is coming from what Mr Imbert refers to as core revenue—from taxation, royalties and customs duties—which means that over $16 billion will need to be sourced from borrowings, drawdowns of the Heritage and Stabilisation Fund and one-off sources of capital revenue such as the sale of assets, dividends from state enterprises and repayment of past lending.
As Mr Imbert said in his 2017 budget speech:
“In 2014, the revenues from petroleum alone, as measured using the formula in the Heritage and Stabilisation Act, were $19.3 billion. However, in 2016, as a result of the double whammy of depressed oil and gas prices and changes in the fiscal regime for the energy sector, which came into effect in 2014, and allowed for the write off of 100 per cent of capital expenditure on exploration in the first year, among other concessions and declining predictions, the revenues from petroleum dropped to just $1.7 billion. This represents a decrease between 2014 and 2016 in annual revenues from petroleum of $17.6 billion, or 92 per cent.”
What that means, quite simply, is that Mr Imbert faces the most challenging fiscal environment of any finance minister since ANR Robinson in 1987, close to 30 years ago. Mr Robinson, now deceased, served as both prime minister and minister of finance during the 1986 to 1991 period.
In fact, it is doubtful that any finance minister in the history of the Caribbean has faced a 92 per cent decline in the main revenue-earning sector of their country in a two-year period.
That fact alone provides the economic context of the 2017 fiscal environment and provides the current administration with significant incentive to ensure no legitimate dollar of taxation is left uncollected.
The government’s need to maximise tax revenue in the current 2017 fiscal year answers the argument put forward by Amcham TT’s CEO Nirad Tewarie and Chamber president Robert Trestrail on last Sunday’s edition of Money Matters that the Government should reform tax administration before implementing new taxes.
That’s because, according to a 2010 study by the International Monetary Fund, entitled Revenue administration: A toolkit for implementing a revenue authority: “Experience has shown that successful implementation of a revenue authority can take anywhere from 12 to 18 months. It requires a dedicated project team, competent officials assigned on a full-time basis to the effort, liaison with many areas of government as well as professional advice that may not be available in-country.”
In that document, the IMF also asked this question, which is extremely relevant to T&T: is the Government prepared to deal with possible labour relations upheaval in a move to a revenue authority?
The answer, according to the IMF toolkit:
“Unless a government decides to move all existing staff over to the new RA, there is usually a multitude of issues arising from the treatment of existing staff that will garner great interest from the union or staff association. From what happens to staff to the status of the union as bargaining agent, there are many issues where the government’s desired outcomes will likely not generate union support. This can often be mitigated by early engagement with the union. Nevertheless, there is a political, policy and tactical decision to be made by government on the extent to which they want to engage the union on this particular issue.”
The key words in that paragraph are early engagement.
Is this administration capable of early engagement?
Is this administration capable of speedy decision making followed by rapid implementation of decisions taken?