It is payback time for tax dodgers in Grenada. For a decade many well-placed people refused to pay government millions in taxes and were getting away with impunity. Now that a potential tax fraud scandal could be exposed many are on the run with nowhere to hide.
Ironically, it was a rookie parliamentarian that instigated the showdown breaking a taboo by calling on all politicians to pay their fair share of taxes. This was unprecedented, unheard of in the State of Grenada, and it triggered a frantic investigation in high places to corner the culprits.
No one is above the law but officials were leveraging their power position and inside connections to falsify tax returns or omit filing documents, some for fifteen (15) years.
The preceding anecdotal episode is indicative of the nature and sophistry of tax cheating that takes place in Grenada, but it is just the tip of the iceberg. Many expect the investigation to reveal the full magnitude of the problem, and what’s worse, people are calling for names to be published for all to see. The negative fall-out could be a game changer for many.
Taxation is a charge imposed on citizens and business entities by government mandated by law and the constitution. Failure to pay tax is punished by heavy fines and jail terms but nobody likes to pay taxes, even the rich and famous.
In the last decade celebrity tax dodgers included movie stars Lindsay Lohan and Sean Connery (James Bond 007). In 2010 Tim Geithner, Treasury Secretary in the Obama administration, was charged with tax dodging by the Internal Revenue Service. In July 2013 Silvio Berlusconi, former Italian Prime Minister, received a four-year jail sentence for tax fraud.
Government needs tax revenue to run the country. You cannot hire someone to do a job and refuse to pay him or deprive him the resources he needs to do it. Without tax revenue the whole administrative machinery breaks down.
In the worse-case scenario anarchy prevails: wages and social services are suspended; physical infrastructures are in ruins; public utilities like water dry up; rotten garbage becomes a health hazard; the civil service stops functioning and the economy breaks down. As law enforcement is nowhere criminals and bandits run rampage over town and country.
Taxes are also needed to support strategic industries, finance international obligations, provide investment incentives, and stimulate economic activity.
The recent revelations of tax delinquency causing consternation in the nation pertain to personal and business income tax.
With a 47, 000 workforce approximately 1600 (3%) pay personal income tax (PIT), a 30% levy on the excess of their $5000 salary. Even within this clique windows of opportunity are found to dodge the tax.
For businesses, capital gains are tax-free but there is a 30% tax on profit margins. Under the VAT system tax returns are not required for business output under a $120,000 threshold.
Tax avoidance and tax evasion are the two methods used to reduce tax liability or to cancel it altogether, but there is a thin red line between the two that tax evaders easily cross.
Tax avoidance is the right to reduce your tax by legitimate methods. These include claiming tax allowances and exemptions, transferring assets to tax-free entities, making tax-deductible contributions to charity and social welfare, and exploiting loopholes in the tax law.
Tax evasion, however, is a serious felony sanctioned by heavy fines and incarceration. Taxes are evaded in many ways including misrepresentation of business affairs, making false declarations, and bribery.
Currently Grenada is struggling with a liquidity crisis that threatens to plunge the nation into bankruptcy. We are under tremendous pressure from multilateral, bilateral, and private creditors to pay our debts and we even face court litigation. Hence, it is bordering on sabotage when millions of tax dollars badly needed for socio-economic welfare are siphoned away by unconscionable cheaters.
Overtime, governments have tried to stem the tax hemorrhage by offering the “olive branch” to tax offenders with tax amnesty, voluntary compliance, and other facilities. Notwithstanding, it has been business as usual for tax dodgers. Therefore, an alternative is to “name and shame” the culprits.