Taxation binds citizens and State together

‘Not to be shot and missed, nothing is really quite as satisfying as an income tax refund’ – F.J. Raymond

PAYING taxes constitutes a social contract between the State and the citizen – individual or corporate.
The citizen’s obligation is stipulated in law and that is to pay a certain agreed amount to the State periodically.
Having received this money, the State in its turn is required by law to put the money to use for the public good – that is, for the benefit of the tax-paying citizen.
In this manner, citizen and government are beholden to each other into perpetuity.
The welfare of one is inextricably linked to the other. This interdependence is the fundamental basis for survival of nations and citizens of those nations.
Like a dam collects water from many streams, the State collects taxes in drips and drabs from many sources and pools them into the consolidated revenue until it accumulates to a sizeable portion – about K16 billion last year and a little more this year.
Together with other sources of revenue such as grants from donors, loans from banks and other institutions, and dividends from investments, the government then frames the budget, taking into consideration how the money would be shared equitably to all its sub-national tiers, its social programmes and maintaining and/or building public projects.
As complex as it may seem to the average man, Papua New Guinea’s tax legislation has worked well so far.
The agency responsible for tax collection, the Internal Revenue Commission (IRC), has had to deal only with problems such as tax evasion and/or withholding of taxes. Where ever tax legislation or the tax regime has needed changing, there has been extensive public consultation.
By and large, there has been no real challenge to the overall tax legislation the IRC has been operating under.
One aspects of taxation that is little appreciated is that quite a number of tax measures are introduced or extinguished annually at the budget.
When the national budget is passed each November, there are a set of tax measures that are also passed into law.
These laws pertain to increases or decreases in personal income tax, in company taxes and in excise and tariff for certain categories of items which are imported or exported.
This year, for instance, the personal income tax threshold was increased to K20,000. That means any person who earns about K750 per fortnight will not pay taxes.
While this is good news for a large number of people in that income bracket, it places an inordinate amount of pressure upon a smaller group of people to carry the tax burden.
If there is a shortfall in revenue, then the Government must necessarily fund the budget through increased borrowing or await some kind donor to pledge the balance.
There is that interdependence thing again. The State is concerned for the citizen in a hard economic climate and tries to relieve the burden with tax cuts but, at the same time, it is sacrificing its own revenue from taxation in the process. Its own budget and programmes will be affected by the same amount as the foregone taxes from those below the tax threshold.
Handling public money is the province of government and public service so that is why they come under great scrutiny when there is apparent wastage or unbudgeted expenditure that requires some explaining by the custodians.
The taxpayer has a right to question how tax money is spent and to see evidence of good management of money in results and in timely acquittals.
Institutions such as the parliamentary Public Accounts Committee and the Auditor-General’s Office are there to inspect or query any and all public expenditure but, of late, their functions have been undermined by funding and resource constraints.
With the increased levels of funding in the annual national budget allocations to districts, provinces, departments and sectors come the need for a higher level of scrutiny and accountability. There is interest in how this hard-earned money translates into goods and services for the common good.
Handling public money and discharging public service duty therefore are serious, if not, sacred responsibilities that all are called to respect and ensure they are carried out.