New tax authority in Trinidad and Tobago to boost compliance and government revenues

Following a deep recession and calls both domestically and internationally to boost financial transparency and broaden its tax base, Trinidad and Tobago has moved forward with the establishment of the T&T Revenue Authority (TTRA). While policymakers have long worked to streamline tax collection, the TTRA is the most important step taken by the government to date aimed at closing the gap between potential and real revenue.

Existing System

The current system has been characterised by weaknesses in laws, regulations and human resource management. The Caribbean Regional Technical Assistance Centre has referred to T&T’s current system as “highly inefficient”, and the country ranked 160 out of 190 in paying taxes in the World Bank’s 2020 ease of doing business index, scoring 53.5 out of a possible 100, below the average in Latin America and the Caribbean of 60.5 and counterparts like Dominica (83), Jamaica (124), Grenada (143), and Antigua and Barbuda (145). The report noted T&T’s total tax contribution rate as a percent of commercial profits was 40.5%, below the regional average of 47% but above that in OECD high-income countries (39.9%).

According to the World Bank, the average time necessary to file three major taxes is around 210 hours a year, and the score for the post-filling index, which takes into account the time needed for value-added tax (VAT) refunds to be processed and comply with a corporate income tax correction, was 19.5 out of 100. As such, the overarching aim of the TTRA is to make the tax regime more efficient and enhance taxpayer compliance.

Aims & Expectations

The Inland Revenue Division (IRD) and Customs and Excise Division (CED) – both part of the Ministry of Finance (MoF) – are charged with overseeing tax collection and Customs protection, and are to be replaced by the TTRA. The central objective of the TTRA is to improve tax collection. In turn, this will boost government revenue, which has been under pressure in recent years due to the fall in the price of oil. In July 2019 Colm Imbert, the minister of finance, told local media that the government expects that TTRA will increase tax revenue by TT$3bn ($443.2m) to TT5bn ($738.7m), closing the fiscal deficit of TT$4bn ($591m) for 2019.

More broadly, the TTRA’s mission will be to ensure overall collection of government revenue. To this end, it will have the power to investigate tax evasion, enforce border protection and carry out audits. The new agency is expected to increase the collection of VAT, corporate tax, income tax, Customs and petroleum profit tax by 50%, per Imbert’s projections.

Tax Amnesty

In anticipation of the TTRA, in May 2019 the government announced a period of tax amnesty from June to September 15, waiving penalties on outstanding taxes, interest and tax returns for companies, organisations and individuals for the years up to and ending on December 31, 2018. It was later extended to September 30 due to the overwhelming response. The programme collected TT$2.4bn ($354.6m), well above the government’s initial target of TT$500m ($73.9m). While the primary purpose of the amnesty was to facilitate the transition to the TTRA, it also showed to the public in real terms the gap between potential and real revenue collected by the authorities. The expectation that the TTRA will be more efficient and thorough was credited for the success of the amnesty.

Conceptualisation

There have been efforts for a number of decades to reform the tax system, and recommendations to create a new revenue authority date back to at least 2003. The first concrete step to building the proposed TTRA was the IMF’s Administration Diagnostic Assessment Tool (TADAT) report published in December 2017. Its review of the tax system was not favourable, with the country scoring two As and 18 Ds across the 28 performance indicators. The deficiencies indicated in the 2017 report formed the basis for the government’s strengthening of the tax system, and another TADAT was under way as of January 2020.

There is no single model for a revenue authority. Authorities worldwide vary in autonomy, from that of France – which acts almost as a ministry – Peru’s, which is largely considered semi-autonomous. As such, after conducting benchmark research looking at approximately 40 other authorities that could influence the design of a system appropriate for T&T, the MoF conducted stakeholder consultations with numerous relevant actors, including the private sector and government departments such as the IRD and the CED. “It was a positive and necessary step for the government to look at other countries in the region for examples of how a reformed tax revenue collection system can have wide-reaching implications across the economy,” Hadyn Gittens, CEO of the Securities and Exchange Commission, told OBG. “For instance, the Jamaican government has exerted a tremendous amount of effort towards making the system more efficient, and it shows.”

Design & Implementation

The private sector has been generally supportive of the TTRA, underscoring the importance of implementing a resilient system with a digital component whose benefits extend beyond the government’s coffers. “If the TTRA is successful in improving tax revenue collection, the economy will reap the rewards,” Arun Seenath, a partner at Deloitte, told OBG. “The system must be robust, rigorous and systematic in its approach to broadening the tax base, and digitalising tax collection would help boost transparency.”

The authorities have sought to make it clear that the new institution will not be a replica of previous tax entities, but rather it will be a re-engineering of business processes that will entail a complete re-shaping of every procedure used to collect taxes. Even so, the government has also sought to strengthen the IRD to provide a more solid base for efficient tax collection on which the TTRA can stand. “An important aspect of the TTRA will be its role in enhancing transparency across the entirety of the country’s fiscal system, a goal that is an absolute priority for T&T,” Gittens told OBG.

Delays

Despite being a prime concern of the government and having the business community’s broad support, the final approval of the establishment of the TTRA has been stalled by opposition lawmakers in Parliament, where it needs a threefifths majority to pass. As such, opposition support is necessary. The American Chamber of Commerce of T&T (AmChamTT) emphasised the importance of the new agency in its 2018/19 “Budget Submission”, a report evaluating the budget. “First and foremost, the establishment of an adequately staffed revenue authority, empowered to effectively collect taxes and administer the taxation system, would greatly improve effectiveness and efficiency.” AmchamTT also called for bipartisan collaboration on this and other issues of national importance. According to AmChamTT, the TTRA will be one of the three pillars necessary to help T&T achieve developed-country status by 2030, with the others being the phased adoption of accrual accounting standards and the implementation of proper procurement practices.

To ensure bipartisan support, a parliamentary joint select committee (JSC) was formed in 2018 to build consensus and incorporate stakeholder comments into the TTRA bill. The JSC issued its final report in April 2019. Opposition concerns remain, however, regarding direct oversight by the executive of the authority’s staff, as well as the appointment of the top TTRA posts by the minister of finance. Critics raise fears that this would give political appointees access to sensitive tax information.

The government pushed back against these claims in a statement in January 2019. “The TTRA will be an agency of the government of T&T, and will therefore be subject to the general direction of the government. At present, the minister of finance and the government have no control over the day-to-day operations of the IRD or [the] CED. This fundamental approach will not change.” The statement also emphasised that the kind of change necessary to streamline operations, boost government revenue and increase tax compliance is impossible under the current system. “The constraints of the existing legal and regulatory system limit the kind of changes that are necessary in the areas of human resource management, corporate performance and improved accountability,” the statement said. Imbert told local press in June 2019 that while the minister of finance would appoint the board of the TTRA, its members will have no access to individuals’ or entities’ personal tax information, and as such taxpayers’ privacy would be assured. The government is optimistic about the bill’s prospects in the short term, and expects the legislation to be approved in 2020.