a496: Durban Thoughts on Taxes (fwd)

[Bob Corbett <corbetre@webster.edu>]

From: Lance Durban <lpdurban@yahoo.com>

To provide the minimum level of services demanded by its
citizenry, a government can finance itself in three ways:

        	1.  Expanding the money supply.
	        2.  Borrowing
	        3.  Taxation

Over reliance on the first brings a deterioration of the
exchange rate with its neighbors and leads to domestic
inflation, further aggravated if the country imports a lot.
Option two, borrowing, requires a willing lender, and comes with
the stipulation that funds must be repaid in future
years...perhaps by a future government.

In Haiti, I would argue that far more consideration needs to be
given to option 3.  Taxation requires the painful recognition
that there is no free lunch, and before venturing a proposal we
might examine what we have now and how it is working.

                 ----EXISTING TAX COLLECTIONS----

Distrust of governing authority leads to dishonesty on the part
of the tax paying public, and my sense is that the public in
Haiti will go to great and dishonest lengths to evade taxes.
The government, realizing this, is not above a level of
arbitrary capriciousness in calculating and applying taxes to
the not-well-connected citizen.

Import duties make up a substantial portion of tax receipts and
deliberate understating of values and quantities by importers
can be arbitrarily rectified be taxing authorities.  To allow
for subsequent adjustment by Haitian Customs, the clever
importer naturally has to understate his imports by even more
than he normally would.  And using an alternate port of entry on
a smaller vessel may enable one to play off the taxing
authorities.

Sales tax (TCA) is theoretically collected by established
businesses and remitted to the government, but my guess is that
unreported sales are high.  In any event, the informal economy
(sidewalk vendors) compete unfairly by collecting no sales tax.
(To those who argue that sidewalk vendors are poor folks who
shouldn't have to worry about collecting sales tax, how about
the importers from whom they obtain their sidewalk merchandise?)


Besides import duties and sales tax, income tax (corporate and
personal), franchise tax, payroll tax, and licensing fees are
all means by which governments finance themselves.  In Haiti,
all except licensing fees suffer the same defect: They are hard
to apply to a population that is trying its best to bypass the
system.

            ----REDESIGNING A TAX SYSTEM----

To the extent that any government is financed by taxes, it is
financed by the people who pay the taxes.  In Haiti, this can
only be people who have the wherewithal to pay taxes.  For the
most part, that means people who own vehicles, who have a bank
account, and who own a house with indoor plumbing.  To the
extent that these are not Lavalas "pep-la", there may be an
additional problem:  For a tax system to work well, it must be
seen as fair to all and not be driven by politics.  It needs to
be relatively simple to administer and imbued with a degree of
"transparence" that make it difficult for both dishonest
taxpayers to slip by and for government collectors to collect
bribes.

Since the biggest bucks will necessarily come from the people
best able to pay, let's concentrate on assets:  bank accounts,
vehicles, and real estate.    Taxing Haitian bank account
balances would encourage capital flight.  Since there is no way
Haiti can control offshore accounts in Miami, Switzerland, or
anywhere else, we have to rule that out.  Registered vehicles
are already taxed via licensing fees, so that leaves taxing real
estate.  Now, there is a property tax in Haiti, but unlike in
the States, my impression is that there have been very few tax
foreclosures.  Instead, we have periodic chatter about land
reform, something that sounds a lot like legalized theft to most
land-owners.

I would contend that the best thing the Aristide administration
could do in the remaining four years of its mandate would be a
restructuring of the Haitian tax system, basing it on a
universal property tax.  Presently, it is the responsibility of
landowners to keep their "papers" proving ownership, and judging
by the many ownership disputes, my guess is that government
records are haphazard in the extreme.  They wouldn't have to be,
and creating a nationwide database would help.

                  ----WHERE TO START----

Here is one project candidate for an IDB bank loan that I could
support, since it would create the system needed to repay the
loan.   Phase one would be a "projet de cadastre", an
inventorying of who owns what, surveying disputed property
lines, and getting the entire thing computerized.  To keep it
manageable as well as focused on tax revenues, my phase one
would omit both land parcels and houses below a certain minimum
size.

Phase two, running simultaneously, will involve creation of a
revitalized legal system for every aspect of land ownership in
Haiti.  From recording of deeds, to assessing of property, to
mechanisms for protesting assessments, to tax collections and
audits, to following up with foreclosure action on properties
for which taxes are seriously in arrears.  We're talking a
massive overhaul bringing Haitian property registration into the
computer age.

Phase three is the actual implementation of the system on an
area of limited size, with a time line for extension to other
major metropolitan areas.  Close monitoring of implementation is
key.

Such a major nuts and bolts project is by itself apolitical, and
ought to be something that all parties in Haiti could agree on.
Alas, we remain mired in political bickering that prevents
government action almost across the board.   Unfortunately,
failure to come to grips with Public Finance 101 can have grave
repercussions, exceeding even those caused by the political
machinations we have lately been treated to.  For a frightening
view of just how bad it can get with a hopeless string of
government deficits, one might check out Argentina.

Lance Durban



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