The present state of affairs of the Board of Inland Revenue (BIR) as measured by the experience of taxpayers remains sub-optimum.
Given the current economic climate where structural changes are occurring in the global energy markets coupled with the uncertainties which exist with regard to the remaining oil and gas reserves, we can ill afford for one of the most important institutions of Government to remain in such a dysfunctional state.
This raises the appropriate question of what can be done to improve the present system and whether the solution is the Revenue Authority as proposed by the People’s National Movement (PNM) in its 2015 election manifesto.
The BIR, a division of the Ministry of Finance (MOF), is responsible for the administration and collection of taxes in Trinidad & Tobago (T&T), as well as the enforcement of revenue law. It is a multi-billion dollar organization grappling with complex issues both within T&T’s borders and with cross border transactions across multiple sectors.
Due to the BIR’s fundamental revenue collection role, it is arguably one of the most important apparatuses of the T&T Government, because without it there would be no public funding for national security, healthcare or education systems.
In the context of the deteriorating performance of the T&T economy, it is absolutely appropriate for the citizens of the country to ask questions of the Government and the BIR specific to its performance and its current structure.
Before we proffer any solution there is a need to critically examine some of the underlying problems within the present system:
1. The physical infrastructure of the Government buildings housing the employees of the BIR is in a state of disrepair. The move to the Government campus has been delayed for 5 years due to lack of outfitting. This problem can be solved once outfitting the Government Campus is addressed and the BIR is allowed to relocate to its intended accommodation.
2. The human resource management and the industrial relations situation of the department is a far more complex problem. It is common knowledge that in this regard the BIR is impacted by a number of issues:
a. There is an inability to recruit the talent necessary to properly administer the tax system. The BIR is hampered in this regard by its reliance on the Public Service Commission which executes the BIR’s recruitment function and also the Ministry of Finance which allocates the financing necessary to pay salaries that are commensurate with those of the private sector.
b. There is also an inability of the BIR to retain the talent within the tax system and to properly implement a robust merit-based system of promotion and incentives. In this regard, the BIR uses the same performance management system as other public institutions. This system is said to include merit-based assessments but in practice is often driven by seniority and tenure, especially at higher levels.
c. There is a lack of accountability throughout the organization. In this respect, although there are systems in place to measure performance, the methods are heavily bureaucratic and onerous to administer making it almost too difficult to dismiss an underperforming employee. Further, this lack of accountability resonates throughout the system.
d. There is inadequate management capability, and training.
e. There is inadequate staff development, and training.
3. The revenue law has not kept pace with the current business environment and there is therefore a requirement for the BIR to play a greater role in researching and recommending changes for the consideration of Parliament.
4. There is a need to broaden the tax base and streamline tax collection and enforcement to ensure all citizens are contributing their fair share.
In summary, the problems of the current system can be defined as follows:
• A heavy reliance on external bodies to provide funding and perform the vital talent recruitment function;
• A manifest lack of robust performance management systems in place;
• A need for the BIR to play a greater role in ensuring via recommendation to Parliament that tax legislation is refreshed to keep abreast of the current business environment, along with publicizing its policies, and procedures and promulgating more tax rulings; and
• A need for increased tax law enforcement that touches all citizens
Can the Revenue Authority (TTRA) provide the much sought after cure for this malaise?
The question then arises as to what is the philosophy behind the TTRA. The TTRA was originally proposed prior to 2010 by the PNM Administration to replace the existing BIR and Customs & Excise Administration (C&EA).
Its stated purpose is to reform and modernize revenue administration to ensure quicker and more efficient operations. It effectively removes the BIR and C&EA from the public service and establishes a management board for oversight and accountability, facilitating the introduction of more modern human resources and other administrative practices.
Since there are various models which a Revenue Authority can take, the key in our view would be to determine and ensure that the model adopted, by whatever name, addresses squarely the following issues:
• The body should be autonomous from the public service but at the same time remain insulated from Government interference vis a vis specific tax payer matters;
• The body should, however, be made accountable to the Ministry of Finance and Parliament on broader policy and operational matters;
• The body should implement best-in-class corporate governance, which includes internalizing high professional values, ethics; transparency; equity; integrity; accountability and probity in the core of the organization and having the right people in the right places;
• The body should have access to sufficient financial resources to properly carry out its function in the form of Government allocations and later, once instituted, out of the proceeds of collection;
• The body should have the ability to institute a sustained performance management system which addresses pay for performance and accountability;
• The body should develop an internal audit department which has the resources, skill, competence and authority to perform an effective risk management function. This should provide organizational support to achieve good corporate governance objectives;
The body should have a human management function which should facilitate effective recruitment and selection of appropriate personnel; career planning; promotion and advancement; learning, growth and development; performance management; rewards and compensation;
The body should have access to appropriate information emanating from the Customs Department whilst respecting the border protection function of the latter;
• The body should be able to track and enforce the tax compliance of all citizens and broaden the tax net
The end-product of the model being adopted should:
• Aspire to sustainable excellence, whereby the focus is on customer satisfaction and productivity through people;
• Reduce the cost of doing business both at the service provider level and the taxpayer level
• Ensure that the Revenue Authority plays an active role in recommending changes in the tax legislation and that the tax paying public is aware of its policies; practices and rulings
• Allow the human resource function the ability to set academic/technical qualification standards for categories of recruits; to recruit, discipline and dismiss staff;
• to establish and operate staff training/development programmes;
• to negotiate staff remuneration packages which are aligned to that of the private sector
• Institutionalize the process of continuous learning and growth of its employees
• Ensure greater compliance of all persons with the tax laws of the country
There are model Revenue Authority systems around the world which can be tailored to meet all of the above requirements. Examples exist in the case of our Caribbean neighbor Barbados which implemented the body in early 2014 and in Jamaica where the Government is reportedly in an advanced stage of adopting its version of an Authority. It is perhaps too early to pronounce on the success of the Barbados model but anecdotal evidence suggests that it has resulted in increased revenue audits and enforcement activity.
The other critical success factor of any Revenue Authority would be the adoption and execution of a plan to address the following issues: However, even if these items were adequately addressed other critical success factors would be:
• Managing the transition process in which the current employee complement of the BIR is transferred into the new system. This would require consultation, participation and effective communication with the relevant stakeholders, including significant effort in industrial relations to ensure that persons are given the certainty of outcome deserved and their legal rights as current employees of the State are respected;
• Consultation and participation of all stakeholders including employees and employee representatives;
• Change management processes to allow for the unfreezing of established unwanted culture and freezing of desired culture and beliefs;
• Ensuring a proper job analysis is conducted and having the appropriate job specification and job description.
As can be determined from the above, the Revenue Authority, in whatever manifestation, is not an easy solution to implement. Further, if it is not carefully planned and transitioned it can result in significant industrial relations problems. Nonetheless, it seems clear that the present system is working sub-optimally and therefore is in need of fundamental reform.