Random auditing of businesses can avert tax evasion – Dr. Thomas Singh

Mar 16, 2017 News

It is the advice of Dr Thomas Singh that the relevant authorities should conduct random auditing

Dr. Thomas Singh

of businesses to ensure that they are tax compliant and are keeping proper records. According to him it does not have to be a large number on every occasion, just a handful of randomly selected businesses.
Singh, a Senior Economics lecturer at the University of Guyana was questioned on the issue of tax evasion. Some businesses in the City and around Guyana are evading taxes by not issuing receipts to their customers.
He said that the trouble with dealing with the issue is that persons have learnt to play the system. There are usually two sets of books, one for the Guyana Revenue Authority and the other for the owner of the business. However, he believes that random auditing will still help the situation.
According to the economist it is not just that businesses are dodging income and corporation taxes, but they are also facilitating the avoidance of taxes by consumers. “By not issuing receipts, businesses are not reporting all their sales, and so they will pay less in income taxes. At the same time, the prices paid by customers will be the Value Added Tax-exclusive prices.”
Singh explained that under Guyana’s invoice system businesses would pay VAT to suppliers on purchases that are subject to VAT and then claim a refund from the GRA, so that eventually it is the customer who pays the VAT in a legal sense.
He added, “If therefore the customer doesn’t pay VAT, but the seller, and indeed all the people from whom that seller makes purchases, get refunds, then it would seem that no one pays the VAT after all, when receipts are not issued.”
In addition to conducting random auditing of businesses financial records, Singh is of the view that expediting the processing of VAT refunds will also help as businesses will have every incentive to avoid the VAT on input purchases if the refund process is lengthy and cumbersome.
“Once the businesses avoid the VAT it’s an easy matter to offer the customer the ‘no receipt’ prices, as the businesses didn’t pay VAT anyway.”
Singh said that VAT is self-enforcing once the businesses have to pay the VAT. This is so because each entity would then have to recover its taxes by applying to the GRA for a refund. This will force the business to keep proper records and ultimately have to charge the customer VAT inclusive prices.
“If businesses themselves avoid the VAT, the system breaks down.”
For 2016 there have been 141 reports of businesses not issuing receipts to customers while in 2015 there were 101 reports; a 40 per cent increase in reported instances. This data was provided by the Head of the Guyana Competition and Consumer Affairs Commission (GCCAC), Haroon Khan.
Khan said that businesses who do not produce receipts are acting in contravention of the Consumer Affairs Act. He added that efforts were made to sensitize businesses about their obligations to consumers regarding the issuing of receipts.
He said that the entire business hub excluding Sheriff Street between 2013 and 2015 received excerpts from the Consumer Affairs Act for which they signed.
“What you find is that they keep on contravening the law. Once there is an intervention on our part, they rectify the problem quite quickly but you give them a month or two, they go back to the same thing.”
According to Khan, if the GCCAC receives a report of a repeat offender, the owner of that business would be summoned to the commission and if he continues, he would more than likely be eligible for summary conviction.
He said that if found guilty before the court, that businessperson would be made to pay a fine of $1M and one year imprisonment.