Category: Taxation

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If Mitt Romney was in Guyana, his 13.9% tax rate would have been lower

Introduction
If Governor Mitt Romney, a leading candidate for the Republican nomination in the US 2012 presidential elections thought that he would neutralise the attacks by his fellow candidates by publicising his 2010 tax returns, he was wrong.

In fact, the revelation that his effective tax rate – the percentage which the tax he pays bears to his total income – is a mere 13.9%, has served to internationalise a debate on what is a fair tax.

Fairness has been regarded as an indispensable ingredient of a proper tax system even before Adam Smith wrote it in stone as one of the canons of taxation.

It is now a hot topic and is the subject of three columns in last week’s Economist. It also made the editorial of the Stabroek News on January 26. The Trinidad and Tobago government too has announced another tax reform project, following a similar announcement by President Donald Ramotar. Let us return to Mr Romney for a moment.

Poor man
The poor man is worth a mere US$ quarter billion, and together with his wife paid about $3 million in federal income taxes on income of $21.7 million in 2010. His effective tax rate of 13.9 per cent is less than half the 35 per cent top rate of federal income tax applied to any annual income over $379,150 for most top earners.

It is no consolation to the fairer tax movement that the effective rate the Romneys will pay in 2011 is 15%.

Because so much of Mr Romney’s income comes from capital gains, dividends and interest on investments he holds in funds and stocks, he greatly benefits from America’s relatively low 15 per cent rate of capital gains tax (CGT).

Despite having a Swiss bank account and investments in the Caymans under a blind trust, there is no suggestion of impropriety by Mr Romney. He went to great lengths to point out that what he, or rather his trustees, were doing was all within the US tax code that has as many loopholes as our domestic cast net. Romney’s tax rate is below that of most wage-earning Americans because most of his income comes from capital gains on investments.

And that is part of the problem. The other part is Mr Romney’s insensitivity to the glaring income and wealth disparity at a time when there are fourteen million unemployed Americans; where poverty as defined in that country is on the increase, engendering the Occupy Wall Street movement that protested what its leaders consider the unfair share of the income and wealth that goes to the 1%.

Buffet by another name
The USA is a country of data: within days of the end of a month or quarter or year, figures on just about every quantitative measure are released by some department or the other. So it did not take long for Americans to learn that the top 1% of their households earned annually an average of US$1.2 million in 2011 while the national average was US$26,000; accounted for 17% of the income earned by all Americans; or that the top 0.1% earned 8% of the total income.

What accounts for some of the disparity is how the income is earned. The richest 1% receive half their income from wages, salaries and bonuses, a quarter from self-employment and the balance from dividends, interest and capital gains.

The problem lies in the tax treatment of the various sources of income with income from employment being taxed at a higher rate than investment income. And that is where the debate gets heated, philosophical and ideological.

In terms that could easily apply to Guyana, US President Barack Obama denounced that country’s bottom heavy tax system, arguing that persons whose annual income is a million and more should pay at least 30% tax, which is the rate paid by the average middle class household in employment. President Obama likes to cite the “Buffett Rule,” whereby the Omaha billionaire and third richest man in the world pays income tax at a lower effective rate than his secretary does, largely because so much of his income comes from investments. We too have our Buffet Rule except that it goes by another name.

Bush’s views on double taxation
In 1986, the US introduced tax reform measures eliminating the gap between the ordinary and capital gains rates. But while the gap began to widen again during President Bill Clinton’s second term, it became a chasm in 2003 when the George W Bush tax cuts sliced the top rate on dividends and long-term capital gains from 28 per cent to 15 per cent. As the share of income derived from investments has increased over that time, the gap has widened to a point where most persons, including Buffet but excluding the 1%, now believe that the situation is unsustainable and indefensible.

In seeking to justify the cuts, President Bush said he proposed to eliminate the US dividend tax saying that while “it’s fair to tax a company’s profits, it’s not fair to double-tax by taxing the shareholder on the same profits.” Not many people, including economists and almost all the G20 countries, agree with him. Ironically, Guyana and a number of countries in the Caribbean do and in 1994, the PPP/C government of Cheddi Jagan eliminated the tax on dividends received by residents from resident companies.

The argument that an income should not be taxed twice defies not only principle but practice as well, with Peter Ramsaroop’s 33⅓% income tax plus 16% VAT being a politically artful but technically incorrect case. Given that Guyana has a hybrid system of taxation, the income earned from employment is taxed at source on the Pay As You Earn basis and then again is subject to a range of expenditure taxes including most popularly the Value-Added Tax (VAT). Call it what you will, the income is taxed twice.

No surrogate
Those who support Bush’s argument miss the fundamental point that a company is in law a separate legal entity and not a surrogate for its members and shareholders. It can own property, enter into contracts, commit offences and sue or be sued in the courts. Indeed some companies in a single case, take up more of the court’s time than they pay in taxes. But the courts are not the only public goods a company uses: it uses the roads and other public physical and social infrastructure; it calls on the police for protection and security and has a whole department of government dedicated to serve it. It hardly seems unreasonable to expect the company, on its own, independent behalf to help pay for the availability and use of those public goods through taxes.

But apart from those monetary benefits there is another valuable benefit which a company enjoys and that is the benefit of limited liability.

The first UK Companies Act in 1844 was a transformational measure that was immediately embraced by the capitalist class, despite the fact that it came with high corporate and personal tax rates. One hundred and sixty-eight years later, despite several rounds of tax reform, dividends are taxable in the hands of the shareholder at rates varying from 10% to 42.5%.

Here in Guyana we do have statistics. The trouble is that they are not available to the general public and hardly ever feature in any public reports or pronouncements. It is a national embarrassment that we have to rely on the periodic reports by international organisations like the IMF and the World Bank to provide us with relevant information. It is illogical, and indeed immoral, that the capital gain on the disposal of a house is taxed at the rate of 20% but the gain on the shares in public companies is exempt. It is not as if the so-called incentives of no taxation of dividends has brought about a large number of companies or shares in which the average retiree can invest.

In fact, the incentives of no tax on dividends and the exemption from Capital Gains Tax of shares in public have spanned more than a decade in which none of our public companies has offered any shares to the public, nor has any private company gone public.

Budget 2012
As we approach the 2012 Budget and supplementaries for unfunded 2011 expenditure, the political parties on the opposition benches will be concretising the generous tax cut proposals in their 2011 elections manifestos. No doubt it will be a healthy and instructive exchange with Dr Ashni Singh under whose watch the VAT was introduced.

But before the parties start their tinkering and trading over some matters of percentages and detail to satisfy those who voted for them, it would be far more useful for the country, if not for them politically, to agree on some fundamental objectives of the changes and reforms they seek.

A challenge for both sides is to stem the widening deficit we experienced under the Jagdeo administration, accustomed to debt-write off, sale of public assets and ever increasing tax revenues.

The apparent endless stream of debt write-off has come to an end, and while tax collections continue to rise, they cannot compensate for the spending over-drive into which the Jagdeo-Singh team has taken us.

Conclusion
The evidence from the Reagan/Bush years to the experiences of Greece, Italy and others is that deficit reduction has to have at least an equal mix of increased taxes and spending cuts.

Tax concessions are considered in economics as a form of expenditure. They need to be re-evaluated and reduced.

We have both central and regional systems of government. We do not need the large number of ministries and ministers.

We have a number of statutory bodies charged with responsibilities which previously fell on the ministries. Some rationalisation seems inevitable.

Jagdeo, who saw himself as the country’s economist-in-chief for nearly two decades, did so much tinkering with the tax system in matters both great and small that a more comprehensive review is now overdue. Guyana is a republic committed to equality and the rule of law but with a constitution which places one person above our supreme law.

And the two leading justices who would be expected to rule on tax cases in the courts were granted exemption from tax on their emoluments during the Jagdeo administration.

There must be other and better ways to reward all our judges. We are a republic without republicans. Mr Romney may seriously consider becoming the first.

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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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Tax rates hardly matter

Introduction
As promised, this week’s column looks at the importance of tax rates in the overall scheme of tax policy in any country. I start by saying that lower rates of tax do matter – they allow the taxpayer to retain a higher level of the income earned which they can use for re-investment or higher dividend payments to shareholders. They can also make a country more competitive since prospective investors pay some attention to countries’ nominal tax rates in their investment equation. Hence, the decision to reduce the corporate tax rates by five percentage points would be welcomed both by companies and individuals, as evidenced by the swift response of the Private Sector Commission (PSC) to the announcement by the Minister of Finance.

In making his announcement the Minister said companies benefiting from this measure would be in a position to retain and invest a significantly higher share of their profits. While some may suggest that the reduction in the tax rate had an unmistakable eye on the upcoming general elections, they cannot argue with the effect advanced by the Minister since by definition a reduced tax charge leaves more after-tax profits which are available for investments, higher dividend payments and related party loans. But seemingly too quick to please the political directorate, it was the private sector representatives who stated that the reduction would make Guyana competitive in terms of tax rates.

The private sector leaders travel around and must know that the corporate rate in two of our major Caricom trading partners (Trinidad and Tobago and Barbados) is 25% while our reduced rates are 30% for non-commercial companies, 40% for commercial companies and 45% for telephone companies. Non-regional investors on the other hand would be familiar with much lower tax rates in their own countries, so that our 30%/40% would still sound to them extremely high.

Government failure
The biggest but unacknowledged problem for the private sector is the failure by this government to address tax policy and tax reform which it has been promising for eighteen years. For example, tax policy would address how we treat one sector over another, whether a single person should receive the same personal allowance as the single parent with a number of children, whether there should be differentials in tax rates, the balance between direct and indirect taxes, extending the use of the withholding tax to domestic contractors, etc. Unfortunately what passes for tax policy is the demand for tax revenues to finance a bloated, politicised and inefficient bureaucracy and a government that seems to have an insatiable appetite to spend, spend and spend.

I strongly believe that the flat, across-the-board reduction of five percentage points is both intellectually lazy and politically cowardly. If the officials of the Ministry of Finance were to read the report of the Bank of Guyana (latest mid-year 2010) or indeed the statistics in their own National Estimates, they would see that the business community is increasingly investment-averse despite all the tax and contracts goodies thrown their way. As the following table shows, growth in the economy is being driven by the public sector.

[table to be inserted]

Source: National Estimates 2011

Goodies
The tax laws are now replete with all forms of incentives, some of which are general and others specific, some found in legislation and others in agreements signed by the political arm of the government. Some are intended to encourage exports (the export allowance), investments (the Income Tax in Aid of Industry) which also provides tax holidays for investments in the hinterland, low cost housing and exemption from VAT.

More than a decade after its introduction and generous exemptions for public companies investments, the Stock Exchange remains extremely inactive with no new issuers, i.e., companies going public, or existing companies offering new issues. In the absence of rules on thin capitalisation and the differential tax treatment of loans versus dividends, even our larger public companies find it cheaper to borrow than to raise new capital. There was a time when Banks DIH and DDL could be relied upon to make rights issue or bonus shares which allowed for some greater liquidity in the market. They have not needed to do so.

The commercial banks hold deposits of more than $230 billion dollars of which loans and advances, inclusive of the public sector loans, amounted to $68.9 billion. For several years the government has been critical of the commercial banks and Minister Manzoor Nadir, the self-appointed chief spokesperson of the 2011 Budget is on record as stating that “the commercial banks have been penalizing our people for too long.” He is also on record for cautioning against differential tax rates to protect the locally manufactured products since they “protect local inefficiencies.” That Mr Nadir now supports the things he had earlier railed against shows how politicised the tax system is, how it is influenced by the changing tides of political opportunitism and why we have a tax system that is, by any measure other than revenue collection, so dysfunctional.

Drivers
Tax policy has to be driven by a vision and relevant information. This column has called for more relevant information to be disclosed in public documents. Principal among these would be the annual report of the Guyana Revenue Authority which the Minister of Finance has failed to table in the National Assembly for some time now. Let us see how much the construction sector, the bauxite sector, the forestry sector, the agriculture sector including rice, sugar and other crops sectors contribute to the national coffers, and how much remissions, rebates and holidays they receive which may amount to billions each year. And yes, we should be able to see how much each region contributes and compare this with their receipts from the central government.

The Minister has access to data that would tell him that the bulk of the corporate taxes collected by the GRA is paid literally by a handful of companies. These are the commercial banks, Banks DIH and DDL, GT&T and Digicel and the oil distribution companies. The majority of companies could not care about tax rate – they decide how much tax they will pay and have their accounts prepared accordingly. This of course is also true of the self-employed, for which Regent Street is a metonym and to which political protest is as applicable as tax evasion is. There is a strong suspicion that setting a payment level for any period is also true of VAT, and as I have written before in this column, that some politicians have given pledges to the business community for tax support in exchange for votes.

Conclusion
Tax policy and tax reform will clearly have to wait for some years. The Jagdeo-Singh duo is comfortable with the status quo under which urban workers and consumers are the biggest contributors. They are equally comfortable with some sectors and segments making no contribution to the national coffers while demanding so much. The parliamentary debate on the 2011 Budget will close without any discussion on either tax policy or tax reform. In that sense, we are all losers.

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Giving generously but carefully

Introduction
It is the time of the year when requests for donations to business houses – including from my own experience, professional firms – increase from a trickle to a deluge. There is something about Christmas that makes most of us guilty if we turn down a request for a donation, not only from the more prominent charities but service organisations, churches and other groups. Unfortunately, there is no study or other information on the success of these efforts, the main purposes of which are to feed groups of disadvantaged children in poor communities, throw a party for senior citizens and make monetary donations to needy persons. To think that by one’s refusal some needy person will be deprived of a meal or the cheer which the opportunity to participate in an annual party brings is probably not only difficult, but conscience troubling.

Studies abroad have thrown up some interesting and some counter-intuitive findings that are themselves worthy of further analysis. For example, studies show that as a proportion of income, poorer households actually give more to charity: the poorest 10 per cent of households give 3 per cent of their income to charity, compared with the richest 10 per cent which give only 1 per cent of their income. Of course in dollar value, the 1% will far exceed the 3%. They also show that the level of donations rises with the proportion of females in the household, but the presence of children makes no significant difference. This would indicate that women are more generous and empathetic than their male counterparts, even though women on the whole earn or own far less than men.

Surprisingly, those not in work are likely to give significantly more than those in employment — by 20 per cent (conditional on their total spending). There is no significant difference between the employed and the self-employed. Compared with the wage-earner, the effect of being self-employed is to reduce the probability of giving by 11 percentage points, while being out of work reduces it by 7 percentage points. Both these effects are significant.

Political donations
Unfortunately in Guyana where even government information is hard to come by and where our institutions of higher learning are themselves short of resources, it is hardly surprising that there are no studies undertaken of this important measure of a caring and giving society. And perhaps arguably the most substantial form of donation in dollar terms but of questionable social value is that made by businesses to political parties. In that case both the donor and the recipient have an interest in secrecy and the labyrinthine path from donor to recipient would make a good case study for money laundering.

And we are only too aware that for businesses, political donations are an investment in protection money or for future favours, hence the reason for donations of varying sums to the political parties, often based on an assessment of their prospects of winning. And for many businesses with their non-political donations, their picture in the newspapers making the donation to some sport or charitable organisation is good business with column inches of picture and accompanying report being much less than the cost of a paid advertisement.

Charitable donations
Now let us return to genuine, charitable giving. Questions that arise are how much to give, the vehicle for giving and what other considerations should apply. For individuals the cost of giving is much more expensive than it is for businesses. Individuals get no tax relief for any donations whether to national organisations, charities or under deeds of covenant, with the latter opportunity having been taken away when other allowances such as mortgage interest, insurance premiums and family allowances were taken away. Not that it was always easy to make donations even under deeds of covenant, and one recalls the case of Peter D’Aguiar v the Commissioner of Inland Revenue where the Commissioner disallowed a payment of $4,200 per year covenanted by Mr D’Aguiar to the Citizens’ Advice and Aid Service (CAAS). That was before Guyana had abolished appeals to the Privy Council to which Mr D’Aguiar unsuccessfully appealed. The Privy Council held that the CAAS was not a charitable organisation and disallowed the deduction. And we think Mr Sattaur is tough!

There are three separate statutory provisions governing donations, two in the Income Tax Act and one in the Corporation Tax Act, but they all only apply to companies. Under section 35 of the Income Tax Act donations of money or property to the government for public purposes or to or to any prescribed institution or organisation of a national or international character in Guyana or elsewhere are deductible. There are only about eight such organisations which have been prescribed, the most recent being the Cheddi Jagan Research Centre. And under section 75 which is generally regarded as the Deed of Covenant section, the deed must be for a period exceeding two years and to “any ecclesiastical, charitable or educational institution, organisation or endowment of a public character within Guyana, or elsewhere as may be approved by the Minister for the purposes of section 7(e) of the Corporation Tax.” All section 7 (e) of the Corporation Tax Act does is exempt from the tax any such income.

The problem and uncertainty is that section 75 does not specifically require the approval to be publicised by way of an Order or notification while 7 (e) of the Corporation Tax Act requires the approval of the President, again without a requirement for publication. This certainly needs tidying up.

Charity laws
Even if we ignore these technicalities, we have the practical question as to who deserves our donations. Some form of charity laws were promised since 1991 when the Companies Act was passed, but we still have no such laws in Guyana. The word ‘charity’ is often used and confused with ‘not-for-profit,’ these being employed incorrectly and interchangeably. There are some charitable institutions that are in fact created by statute, such as the Guyana Red Cross and the Chest Society, which derive their existence and status from statute. Then there may be some churches that are given statutory recognition and authority to hold property, while the Boy Scouts Association Act seeks to “further and protect the activities and interests of the Boy Scouts Association of Guyana.”

Apart from this form which is done by parliament, a charity may incorporate itself under the Companies Act or the Friendly Societies Act, which place them under some form of regulatory control and hopefully give rise to some level of corporate governance. But does this really happen? All of these organisations, year after year, raise money from the public and no doubt many of them do excellent work, but that can hardly justify the complete absence of some form of public reporting and accountability. Some of them operate as self-perpetuating oligarchs that feel no compunction or obligation to report to the public or to those from whom they raise money. Compare this with a company that would find itself in trouble and in breach of the Securities Industry Act if it was to try to raise money from the public without observing the strictures of the law.

This state of affairs may be due to ignorance on the part of some, and in the case of others because of their conviction of the genuineness and the nobility of their cause that any question or challenge about accountability and governance would seem out of place and Dickensianly mean. But not only should this be mandatory and in the public interest but it is in the organisation’s interest as well. I am certain that donors would feel confident and may even be tempted to give more to an organisation that shows a healthy respect for accountability and for the donors.

Making the decision
So whom should you give your money to? Based on the recommendations of the American Institute of Philanthropy and the amount of money you propose donating you should consider the following:

1. Know who you are giving your donations to. Never give to a charity you know nothing about. Request written literature and a copy of the charity’s latest annual report. If a charity is unable or unwilling to provide you with the information you request, you may want to think twice about giving to it. Honest charities typically encourage your interest and respond to your questions.

2. Ask how much of your donation goes for general administration and fundraising expenses and how much is left for the programme services you want to support. Is your donation going to pay salaries and other administrative expenses or is the bulk of it to be applied to the programme that you wish to support. Most highly efficient charities are able to spend 75% or more on programmes. Keep in mind that newer groups and those that are working on less popular issues may find it necessary to spend a greater percentage on fundraising and administrative costs than well-established, popular groups.

3. Some charities and not-for-profit organisations engage in high pressure fund-raising strategies. You help the organisation when you ask them questions. Ask whether they have a bank account, whether officers are paid or volunteers, do they have annual meetings that are open to the press, and do they have audited financial statements. If the answer to any of these is ‘no’ you might seriously wish to consider whether you would support that charity.

4. Do not accept what they tell you about tax-deductibility. Remember that deductibility is based on meeting the strict criteria of section 35 of the Income Tax Act. Check with your accountant or your attorney if your donation is more than small change.

5. Bear in mind there is only so much you may be able to give. So choose wisely and with the best information at your disposal. But once you are satisfied that the charity is worthwhile, give generously if you can. There are many good charities that need your help to operate valuable programmes and provide needed services. When you give wisely, you will be giving more effectively.

Next week we look at the LCDS and the Norway money