Amendment to Income Tax Act closes loopholes for tax evaders

The amendment to the Income Tax Act, which was approved in Parliament on Monday, will help close any loopholes that are being used by corporations to evade paying taxes.

“During 2018, the Inland Revenue Department (IRD) was … involved in a process of legislative review of its primary governing legislation in order to identify areas within the existing law that required tightening, so as to avoid any exploitation by taxpayers who seek to use loopholes within the system to evade their tax obligations,” finance minister Camillo Gonsalves said.

He said those who can afford “the right accountant and lawyers” have been creative in arguing using loopholes. And the IRD has spent a significant amount of time in negotiations about the parameters of the Income Tax law.

He added that as is, the existing Act does not adequately address the operations of multi-jurisdictional corporate entities.

“Under the current income tax act, the unincorporated branch of a non resident company carrying out business in St Vincent and the Grenadines is not included in the definition of person and therefore it is difficult to categorise a branch as being resident in St Vincent and the Grenadines for tax purposes,” Gonsalves said.

“This results in ambiguity in how a branch should be taxed both for income and withholding taxes. This ambiguity in the definition of person allows for significant exploitation by multinational corporations that operate at head office, branch office arrangement, whereby head offices incorporated and operates outside of the jurisdiction, but operates as an external company registered in St Vincent and the Grenadines in order to carry out business in St Vincent and the Grenadines.”

As a result, the government is seeking to modernise the tax administration and must continuously seek to amend legislation in order to keep up with modern trends and practices.

“Any attempt to make individual or company pay its fair share of taxes ought to be applauded. However, one has to be particularly careful in the timing of such initiatives and understanding the possible consequences of such initiatives,” Daniel Cummings, parliamentary representative for West Kingstown, said.

Cummings said that we live in a world of interconnectedness, meaning that what is done in St Vincent and the Grenadines has the potential to affect a company or individuals elsewhere.

He also questioned whether the finance minister had carefully considered what other OECS countries were doing with respect to their own Income Tax Acts and whether there was a history of where such an amendment have been successful.

“Even more important than trying to squeeze out every last ounce of tax from companies, I believe it is more important for us to create incentives in whatever form to encourage these companies, either to expand or reinvest and to encourage other companies that would want to come to our territory because Mr Speaker, we do have an acute unemployment situation…” the parliamentarian said.
Cummings also commented on the issue of burden of proof and whether that meant the IRD had the authority to challenge a taxpayer’s submission and subsequently require that taxpayer to provide evidence of the claim.

The parliamentarian said burden of proof could be useful if carefully and judiciously used, but “as in the context of St Vincent and the Grenadines, we have seen far too many instances where people are aggrieved and these people in the most cases are not supportive of the government”.

St Clair Leacock, the parliamentary representative for Central Kingstown, also contributed to the debate of the Act.

He said that he can have no difficulty with an government who wants to earn more revenue on behalf of the people in the country.

“…Context is always important and there is a context at this time, an imperative at this time, that the government cannot ignore, namely it has to work much harder on the revenue stream to the national budget to take care of the needs of all of our peoples and that revenue stream is becoming more and more difficult,” Leacock said.

The parliamentarian said there was a tax dilemma taking place in this country, where the government does not have enough money to take care of current and capital expenditure.

Leacock said that he engaged in a study of the budget for the country dating back to 1998 to track the annual movement and increments in revenue and to see what was happening on the expenditure side with respect to interest and amortisation.

Making reference to this year’s budget, he said the projected increase in revenue was still not enough to take care of the increase in interest and amortisation.

“Interest and amortisation is still running faster than tax revenue. As Senator [Israel] Bruce would say, ‘we playing catch up’. So there is an urgency in what I choose to term the transformational deficit; that is for us, as a people, to be able to walk the talk,” he said.

Leacock said that he agreed with what the amendment of the Act is intended to do but he also raised concerns that there was a possibility to interpret that law as being more accommodating to international companies.

Prime Minister Dr Ralph Gonsalves and Opposition Leader, Dr Godwin Friday also made contributions to the debate.

The Income Tax (Amendment) Act (2019) went through all its stages during this week’s sitting of Parliament.

Two other bills, the Drug (Prevention of Misuse) (Amendment) Bill (2019) and the Child Justice Bill (2019) had their first reading in Monday’s sitting of Parliament and were sent to select committee for review.

The next sitting of Parliament is scheduled for May 2 at 10am.