Category: Letters to the editor

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Mr Khan’s letter ignores Section 13 of the Income Tax Act exempting only the President’s official emoluments from income tax

Of all the serious questions raised about President Jagdeo’s “acquisition” of acres of land at Pradoville 2, Attorney-at-law Mr Jerome Khan (‘President Jagdeo is not liable to pay capital gains tax after selling his house in Pradoville 1’ Stabroek News, February 15) has chosen to join issue on whether or not the President is liable to pay income tax under any circumstances.

Mr Khan’s entry in the minefield of revenue law with some constitutional implications is welcome and his reminder to readers about section 66 of the Tax Act Cap 80:01 is useful. However, his bold attempt to defend Mr Jagdeo in the absence of any attack and his description of excessive and possibly unlawful benefits as “protection of the law” may be excused as convenient and self-serving, even opportunistic to the point where Mr Khan ignores the basic distinction between what lawyers refer to as a sword and a shield. The constitution’s principal shield for the President is provided under the immunities article (Article 182) and with respect to income, only that it cannot be reduced to the holder’s disadvantage (Article 222 (3)).

Mr Khan’s reliance solely on section 66 of the Tax Act and his certainty about how the courts of Guyana and the Caribbean Court of Justice would rule in a matter that at best involves the thorny issue of a conflict of laws presumes too much and would hardly come from an experienced attorney-at-law. His letter completely ignores Section 13 of the Income Tax Act which exempts from income tax only “the official emoluments [emphasis mine] received by the President both when in and when absent from Guyana.”

In his forays into revenue law, Mr Khan should know that the Tax Act in its many incarnations preceded the Income Tax Act, which was first introduced in this country in 1929. Why would a court ignore the argument that the provision was in respect of known taxes at the time, particularly since under each subsequent Tax Act – Income, Capital Gains and Property – the law specifically addressed presidential exemption. Mr Khan may also note that the long title of the Tax Act is ‘An Act to consolidate the enactments relating to the imposition of taxes for the public use in Guyana.’ He would know too that there have been twenty-one amendments to Section 13 of the Income Tax Act and not a single one sought to exempt from income tax, income other than the official emoluments of the office holder.

Is Mr Khan suggesting that the parliamentary draftsmen, the attorneys general, the ministers of finance, the National Assembly and the president who assents to all acts including amending acts, did not know about the qualification in Section 13? And is Mr Khan aware that the President pays VAT on his purchases of standard rated items in the absence of a specific exemption in the Value-Added Tax Act?

Tax exemption for the head of state has a particular history and context. It derives from our colonial days when the governor’s ‘official emoluments’ paid by the British government had to be specifically exempted for two reasons. The first was that since the office or employment was exercised in British Guiana the income would be taxable here, regardless of where paid. Second, since the emoluments accrued to a person who was considered resident and domiciled in the UK, under their laws it was taxable there. In other words, the income was taxed but not in Guyana.

Ethically minded individuals assuming high political office usually place their personal assets in what is referred to as a blind trust, and studiously abstain from business deals while in office. Lawmakers make certain assumptions about the character of the holders of high office and would hardly contemplate a president being willing to stretch the laws.

But let us for a moment assume that Mr Khan is right: to exploit a loophole in the tax laws for one’s benefit is to engage in tax avoidance – something that Mr Khan as an attorney seems to be advising gratuitously but which Mr Jagdeo as President should resist. And as for Mr Khan’s pronouncements about motive and intent in the Pradoville 1 transaction, Mr Khan may wish to refer to what are called in tax laws the ‘badges of trade’; to the inferences from which motives can be drawn; and to the whole body of relevant case law which I think would be outside the scope of a letter to the editor.

I hope Mr Khan appreciates that this is not some technical issue about conflicts of laws but one of a political culture where a person operates outside and above of the law. It is about the rule of law and the equality of persons before the law. I would borrow his own words and state that I have no doubt that as taxpayer, former politician and now practising attorney-at-law, Mr Khan would agree with me on these and on the improprieties surrounding Mr Jagdeo’s property transactions. In fact the judges of the CCJ would find interesting a ‘lawless’ and unique set of laws while Mr Khan may find his confidence that that court would give him unqualified support completely misplaced.

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President Jagdeo’s land dealings not above board

President Jagdeo has finally confirmed that he has acquired land in Pradoville 2. He described the price as $5 million per acre without stating how many acres he bought. The word is that it was 2.5 acres of land, which if true is arguably the largest single plot of land by any individual in any residential area in Guyana.

Mr Jagdeo had been among the favoured comrades and strategic individuals to receive an allocation of land in Pradoville 1. He did not build until several years later, rented the house no doubt for a decent rent, and later sold it for a substantial gain. Soon after, in negotiations in which he was influential as both buyer and seller, he acquired land in Pradoville 2 at a concessionary price.

The President enjoys the following exemptions from taxes under the law:

1. on his official emoluments under the Income Tax Act;
2. from all customs duties under the Customs Act;
3. from all obligations under the Property Tax Act;
4. from all obligations under the Capital Gains Tax Act.

Under the Former Presidents (Benefits and other Facilities) Act 2009 in which he was not in an insignificant conflict, Mr Jagdeo will enjoy those exemptions plus a substantial pension and other benefits until death, or until the earlier repeal of the act.

Let us look first at tax issues facing Mr Jagdeo. Since rental is not official emoluments, the net rental income from the Pradoville 1 house is taxable. But Mr Jagdeo’s tax exposure does not end there. He never lived in that house, used it as a commercial venture and then made a substantial profit on its sale. After further consideration and research, I have revised my earlier suggestion (Business Page October 31, 2010) that the gain would be subject to Capital Gains Tax except for the exemption stated at 4 above. It is now my considered view that on a proper interpretation and application of the tax laws, the gain is taxable as income under the Income Tax Act despite the fact that it arose from what would be described as an isolated transaction.

Now to Mr Jagdeo’s land dealings. The standard clauses in transports for the purchase of land in government schemes include:

a) The purchaser must build within twelve months of the passing of transport. Any person failing to do so is bound to re-convey the property to the Central Housing and Planning Authority, subject to be reimbursed with a reasonable sum for any development works undertaken during such period.

b) The purchaser cannot sell, lease, transfer or otherwise dispose of the said property within ten years from the date of transport, without the written consent of the Minister responsible for Housing. If the person wants to do so, the Central Housing and Planning Authority must be given the first option to buy.

c) Anyone who owns real property is not entitled to purchase a lot. If it is found out that the person had owned real property within the past three years he is liable to pay to the Government of Guyana or Central Housing and Planning Authority the current market value of the lot or at its option, the Government of Guyana will be entitled to repossess the said lot upon the repayment of the purchase money less expenses incurred for repossession.

That Mr Jagdeo did not build within twelve months; that he earned rentals; and that he made a gain of approximately $100 million on the sale of the Pradoville property are hardly matters of dispute. He is therefore in breach of the condition under the Pradoville 1 transport and has tax obligations in connection with the property he owned and sold there.

Mr Jagdeo’s attorney may want to make the slick argument that Pradoville 2 is not subject to the rules that apply to government lands. But no one can dispute the arithmetic that 2.5 acres of land in the Eccles housing area (Block A) and comparable land at Diamond would fetch $10 million per acre. It is clear then that $12.5 million for 2.5 acres of ocean front land in the far more exclusive Pradoville 2 cannot be justified and Mr Jagdeo of all people must know this.

When around 1970 then Minister of Works Hydraulics and Supply Hamilton Green acquired government-owned metal sheets to paal off his private property, the PPP, the Catholic Church, the TUC, professionals and all decent-minded Guyanese were outraged. At the instance of Eusi Kwayana, the Ombudsman investigated the matter and exonerated Green. Contrast that with Mr Jagdeo’s shocking and secretive acquisition, contempt for the dignity of the highest office in the land, disdain for the opinion of the people, making a joke of the Norwegians and the United Nations Champion of the Earth award, and the threat and fear of rising sea levels that Jagdeo’s land deals epitomise. It is doubtful that even Burnham knew the possibilities for misuse that his 1980 constitution offered. Hoyte and the two Jagans obviously did not contemplate it. It has taken thirty years and a Bharrat Jagdeo for those possibilities to be exploited to this degree. And we have not seen the end. As a result of his Former Presidents Benefits Act, taxpayers will have to meet for the rest of his life the cost of the maids, gardeners, water, electricity and telephones for a property that under any standards of decency would be considered with more than mere suspicion.

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There is a gap of between 15,000 and 19,000 who are paid the Old Age Pension but are not entitled under the law

Minister of Human Services Ms Priya Manickchand behaved with apoplectic rage in response to a conclusion in a report by her parliamentary colleague Mrs Sheila Holder that the number of persons to whom the Old Age Pension (OAP) is paid is inflated by 17,640 (phantom persons, according to Mrs Holder) with a loss to the state of over $1.3 billion.

Ms Manickchand reacted badly too to a cartoon in the Stabroek News of January 27 depicting her unflatteringly, prompting a letter by her which appeared with another by Mr Ivelaw Henry, her Chief Statistical Officer, both on the same day in the Stabroek News (Saturday, Jan 29) challenging Mrs Holder’s numbers. They both cited in support of the numbers being challenged projections done in November 2006 by a Mr Sonkarley T Beaie, who is described as a UN demographics expert and the holder of an MPhil, perhaps with a view to impress us.

To understand the conflicting positions, it is convenient to address three separate but related issues – statistics, the legal framework for the payment of OAP, and the arrangements in place for the payment of Old Age Pensions.

The most recent census done in 2002 shows the following data in relation to persons 65 years and over:

Between censuses, the country’s mid-year population is tracked by the Bureau of Statistics from data on births, deaths and migration, and is reported on in an appendix to the annual Budget Speech by the Minister of Finance. This is what the Bureau of Statistics reports for the years following the 2002 census: 2003 – 752,500; 2004 – 755,100; 2005 – 757,600; 2006 – 760,200; 2007 – 763,200; 2008 – 766,200, 2009 – 769,600, 2010 – 777,900.

One must always be cautious about population data and even more careful about making assumptions from them. I therefore wonder why instead of taking the actual population figure Mr Henry and his Minister chose to rely on Mr Beaie’s increasingly incorrect projections which for total population in 2010 were “wrong” by 10,000. It is fair to say that any major change in the characteristics of a population – other than through migration, a plague or a baby boom – takes place very slowly. From 1980 to 1991 the shift in the over 65 age group was a 0.16 percentage point and from 1991 to 2002 it was a 0.12 percentage point as shown in the table above. Even if we generously assume that the percentage of that group as a percentage of the current population has climbed to 4.5%, the maximum number of persons eligible for OAP would be approximately 35,000, or 7,000 less than the “around 42,000” the Minister of Finance referred to on more than one occasion in his Budget Speech.

That is not the end of the story, since not every person 65 and over is entitled to OAP. The Old Age Pensions Act sets as the conditions for eligibility for OAP that the person must have: (a) attained the age of sixty-five years; (b) been a citizen for ten years; (c) been ordinarily resident in Guyana during the last twenty years; and (d) passed a means test based on income and assets. Therefore any returnee to Guyana before 1991 is not entitled to a pension because of condition (c) and many if not most of the senior citizens living in Courida Park, Queenstown, Pradoville, Oleander Gardens, Republic Park, former senior public servants, professionals including doctors and lawyers, etc, are not entitled under condition (d).

We all have and know of countless others of our friends and relatives and their parents who do not claim Old Age Pensions. These would include persons 65 and over in the population not entitled to on account of their income and/or assets, plus those who are entitled to but do not claim because they do not know they qualify, plus those not entitled because they returned to Guyana less than twenty years ago. Those probably number between 8,000 and 12,000. To get to the number who meet all the tests, we need to deduct these from the maximum, theoretical 35,000, leaving between 23,000 and 27,000 persons who are entitled. This means that there is a gap of between 15,000 and 19,000 who are paid, but who are not entitled to the pension under the law.

At the current rate of $7,500, between $1.4 billion and $1.7 billion is being paid out unlawfully each year.

A recent Value-For-Money audit done by the Audit Office identifies a host of accounting and audit issues that could have given rise to the wide gap.

While the Audit Office must be commended for undertaking the exercise, it is regrettable that it did not attempt to put in dollar terms the range of values involved in its findings, and that it did not look at the related public assistance programme that is subject to even fewer rules and is more politicised and corrupted.

Let us put the calculation into perspective. If Old Age Pensions were paid only to persons legally entitled, then each pensioner could easily receive another $4,000 to $6,000 per month out of the money allocated in the 2011 Budget.

Ms Manickchand should now be willing to make her list publicly available for scrutiny.

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Mr Nadir here are some of the state entities with poor audit records

Mr. Manzoor Nadir’s letter on the 2011 budget (Stabroek News, January 23, 2011: Dr. Ashni Singh’s credentials are impeccable) was the kind of “honesty” that Guyanese have come to expect from this itinerant political leader. Mr. Nadir accuses me of being envious of Dr. Ashni Singh’s brilliance and credentials; invites me to join the leadership of the PNC/R and then goes on to praise the 2011 Budget. The second is the most convenient to dispatch first: Mr. Nadir must know that I declined an invitation to be nominated for the presidential candidacy of the PNCR and I also refused his invitation to go on the TUF slate for every election since 1997. I now address the other issues.

I last had a cordial discussion with Mr. Nadir this Tuesday, January 19, the day after the 2011 Budget. He acknowledged my correction of a misleading claim he made last year on the performance of the economy and that he had begun to repeat this year. He also indicated that he relies on the Ministry of Finance for some of his numbers. This gentleman is the leader of the country’s only declared anti-communist party who gave himself completely to the country’s only declared Marxist party, one that has distinguished itself by the single word corruption! Maybe he is honestly trying to correct the historical wrong of his party’s joining with the PNC to cause the PPP to lose office.

His accuracy or honesty, or both, come again into question in trying to attribute to me personally an official publication of Ram & McRae, of which I am one of three partners. The analysis did not question Dr. Ashni Singh’s credentials and I would have hoped that Mr. Nadir would recognise the analysis – done by a team of the firm’s dedicated and professional staff working through Budget night – was about the Budget and not about either Dr. Singh or me. In fact I now say that Dr. Singh’s credentials stand in marked contrast to the increasingly intellectual bankruptcy of his and the PPP/C’s annual budgets.

I would avoid Mr. Nadir’s personal attacks and forays into my mind and motives and address only the essential points in issue. As the Ram & McRae analysis pointed out, and which Mr. Nadir could not dispute, the personal allowance of $40,000 now is in real terms less than the value of the $35,000 when it was set at that level three years ago. Nor can he dispute that the Minister did not indicate the cost of the tax proposals in the budget speech, a cost that just might show that businesses are expected to receive more from the 2011 Budget than the workers, pensioners and indigents.

On the issue of contract employees, Mr. Nadir correctly quoted from the firm’s analysis but then goes off into an excursion into diversion by explaining that “in 2010 we (government) moved all the cleaners, handypersons, drivers and lower level skills to contracted positions.” Mr. Nadir, like his political boss, must think this is a country of fools to believe that “cleaners, handypersons, drivers and lower level skills” can account for a 40% increase in that group. For the record I draw his attention to Table 9 of Volume 1 of the National Estimates, account code # 6115 Semi-Skilled Operatives and Unskilled, which shows an increased, not a reduced allocation, even after the low level “move”. The same applies to Temporary Employees and Clerical and Office Support!

Mr. Nadir must also know that his group of lower level skills is commingled with political appointees such as Reepu Daman Persaud, Feroze Mohammed, Harry Persaud Nokta, Shyam Nokta, Odinga Lumumba, Dr. Randy Persaud, Dr. Prem Persaud, Gail Teixeira and Kwame McKoy and hundreds of others at the Office of the President, the Ministry of Finance and indeed throughout the public service. Mr. Nadir should tell us which one of these contract persons earns less than $500,000 per month, not argue over the minimum wage about which “his” government has a questionable record. And he might wish to tell us whether the decision to treat the lower level persons as part of the group of contractors was done to disguise the average pay of this group after I had exposed it two years ago.

Stating that I used a broadside to describe the state of audits of public entities, he dared me to name any of those entities. Does he need any more than NICIL, the entity of which the Finance Minister is Chairman and through which state assets are diverted for unlawful purposes, and which disdainfully refuses to have an audit or to file an annual return? Just in case he needs more, here we go: Go-Invest, Guyana Energy Agency, Institute of Applied Science and Technology, Integrity Commission, GINA. Need some more? What about National Sports Commission, Guyana National Bureau of Standards, Environmental Protection Agency, etc.

Only someone who has not read the Public Corporations Act or the Guyana Revenue Authority Act would make such an uninformed and incorrect statement that it is the Auditor General who is responsible to report to Parliament on entities falling under those Acts. In fact, the Acts require the entities to submit, within six months of the end of the year, their audited financial statements and directors’ report to the Minister of Finance or other relevant Minister. It is the Minister who has responsibility for tabling them in the National Assembly. It gives me no pleasure to correct Mr. Nadir twice in one week.

Mr. Nadir does not help his Minister by his reference to the Audit Office, which provides evidence of a relationship between the Minister and that Office which constitutes a uniquely bad case of professional independence. Or by his questions about statistics which we know emanate from the Stats Bureau and the Bank of Guyana over which the Minister of Finance exerts both official and improper influence.

Two points in closing: one, it is the sycophancy of people like Minister Nadir that encourages the excesses, improprieties and illegalities of the Jagdeo Administration; and two, I hereby publicly invite Mr. Nadir and the Finance Minister to appear on Plain Talk to discuss the 2011 Budget. If Dr. Singh is unwilling, I invite Mr. Nadir to bring along one of his TUF colleagues. That is, if he can find one.

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Mr Lall and his gov’t cannot escape responsibility for the state of the dump site

Some of the many things that immediately come to mind about this government are the combination of its ignoring or ignorance of basic laws, its neutralising or neutering of the opposition and its tendency to pass the buck at every opportunity. Mr. Kellawan Lall, Minister of Local Government who stands out as a ministerial recipient of police tolerance – or their hesitation to prosecute crimes involving special persons – single-handedly demonstrated these failings in his statement in the National Assembly in relation to the Le Repentir garbage disposal site “I want to debunk the idea that this [site] has to do with the central government.” (S/N Friday December 31, 2010).

The minister’s expertise in dump site management was not known until that moment when he informed the National Assembly that “over the years, he had advised the Solid Waste Department of the M&CC how to manage the site but it failed to heed advice.” Here is a man who has acted autocratically on less important issues when the M&CC (sic) failed to take his “advice” but who, when the well-being of tens of thousands of the citizens of Georgetown is at stake, stands back for years, doing nothing and coming close to wishing a city-wide health pandemic to prove a political point.

Such a statement denying government responsibility and documented for posterity in the official parliamentary records should have been immediately challenged for its glaring and dangerous inaccuracy. Article 149 J (1) of the constitution sets out as a fundamental right of every citizen “the right to an environment that is not harmful to his or her health or well-being.” And Article 149 J (2) imposes on the State (emphasis mine) a duty “to protect the environment for the benefit of present and future generations through reasonable legislative and other measures designed to – (a) prevent pollution and ecological degradation…… “.

Mr. Lall at the very least ought to know as well that the Guyana constitution gives to every citizen a right to life. Courts in more normal countries have interpreted this right liberally and widely to include in addition to physical existence, quality of life, access to roads, the means to support life and living with dignity. Unfortunately, with the threshold for ministerial appointment in Guyana being exceptionally low, one does not expect Mr. Lall to be informed about these or about South Africa’s and more recently Kenya’s admirable constitutional safeguards of economic, cultural and social rights. But one does expect that the government’s legal advisors would attempt to educate ministers on general and specific matters pertaining to their work. The evidence so far is that this is not being done or that any effort is not succeeding.

More direct to the environment, my recent readings about citizens’ action in countries in Africa and in India provide ideal examples and support for Guyanese to take action against the government, the Environmental Protection Agency and the City Council for damage to the environment and the endangering of lives.

One example will suffice. As far back as 1996 the Kenya court ordered the shutting down of a school’s toilets because their odiferous gases interfered with and diminished a single individual’s ordinary use and enjoyment of his home. Here in Georgetown we have tens of thousands who are affected by the dump site, some more directly than others, no longer able to enjoy fresh air, to take an afternoon stroll, or to send their children out to play. And to add a desecrating touch, even the dead are again buried, this time by stinking, rotting, toxic garbage. Yet it seems that not one of the living, not any of their political leaders, not a single presidential aspirant, is concerned enough to raise their voice in protest, aggrieved enough to take action in defiance or interested enough to approach the courts for relief.

No surprise then that we have such uninformed, bungling and callous persons as ministers. That Mr. Lall is by no means unique makes it all the more troubling.