Tax office needs strengthening

THE tax office needs its capacity to be strongly reinforced to be able to collect taxes due, says economist and executive director for the Institute of National Affairs Paul Barker.
Barker, while commenting on the under-reporting of tax worth K18 billion by 127 companies revealed by the Internal Revenue Commission (IRC) last week, said the amount seemed “extraordinarily large” and clearly covered an extended period.
He said it also highlighted the weaknesses in data and revenue management by the Internal Revenue Commission, but also reticence of many businesses to register for tax, or to fully pay their dues.
Barker said many local and foreign-owned and operated businesses in the cities, provincial towns and rural areas were failing to pay payroll tax, goods and services tax (GST) or corporate tax, and were operating as though they were informal sector operators, even though they clearly needed to be registered and were making a profit.
“They might say they’re paying taxes of a sort, to officials, criminals and others to turn a blind eye, but they’re not paying to the state, and are unfairly competing with other firms that are paying their fair share,” he said.
“They’re also generally not applying minimum wages or superannuation, or complying with other legal obligations.”
Barker said the IRC must be able to collect tax dues from businesses operating in both rural and urban areas, from renewable resource operators who have not declared any profits, yet have clearly been making very good money over many years.
He said generally, agriculture did not make much money but it generated major employment and needed the support from the state to do so. “The purpose of the extractive sector is substantially to generate the revenue needed by the state to provide core public services like law and order, infrastructure, education, health, etcetera,” he said.
“If it’s failing to do that adequately, there is clearly something amiss.”
Barker said the solution for most business, including for shifting informal sector operators into the formal sector, was not to raise tax levels, but generally to make tax levels lower and more internationally competitive.
“At the same time, we need to ensure that everyone pays, and that the incentive to avoid or particularly to evade tax is minimised but the chances of being caught are raised, along with the penalties.”
Barker further said automating and self-assessing was best and minimising the IRC tasks enabled the tax office to concentrate efforts more on oversight and tax audits, including field inspections to check company books and operations.
“Cooperation between government agencies is critical and sharing as far as possible, within the bounds of the tax laws,” he said.