Anguilla’s airwaves are filled with doom and
gloom broadcasts. Apparently, as a
country and a society, we are finished.
According to one commentator heard recently, the financial position of
the Government of Anguilla (GoA) is so dire that the British government is
about to suspend the Constitution and take over the day to day administration
of the island.
I decided to look at the
available information on our public finances.
I started with the most recent document, a copy of the Hon Premier, Dr
Webster’s, address of 9 July 2020 as printed in the Anguillian Newspaper of 10
July. There, he writes that, because of
the Covid-19 pandemic closing our tourism-based economy, our Treasury is
projected to suffer an EC$97 million revenue shortfall (our highest ever
revenue was EC$207 million in 2007). This
will make us unable to satisfy either our debt obligations or our monthly expenses.
The previous Administration on
11 June 2020 signed an MOU with the British Government for the receipt of an
aid package of EC$100 million (US$37 million) offered to avert the impending
bankruptcy of the island. It is rather
grandly titled the “Anguilla Covid-19 Emergency Financial Aid Programme.”
It is this MOU that is the
subject of so much public grief. In
brief, the FCO’s conditions for the EC$100 million grant to us are,
(1). All disbursements must be
made on submission of a claim in the form provided and accompanied by
supporting documents. The Accountant
General must certify that the claim is correct.
It seems right that the Accountant General of Anguilla should be the one
responsible for justifying the claim for these funds.
(2). Disbursements from the
EC$100 million fund will be made monthly to reimburse us for the previous
month’s recurrent revenue losses. Support
will meet proven losses, not imaginary future ones. This seems a sensible provision.
(3). GoA should continue to
meet debt amortization payments from its sinking fund. This is a sensible provision. We cannot be defaulting on our debt while the
British taxpayer pays our public service commitments.
(4). The aid ceiling is set at
EC$100 million for the 9-month period April to December 2020. Recurrent revenue loss in any given month
will be supported up to 70% of the forecast recurrent revenue (Control 1). In other words, as I understand it, the $100
million will not be used to make up the total amount lost. Support is limited to 70%. This appears designed to encourage frugality
and is to be commended.
(5). Revenue support will be
reduced by the value of any revenue foregone in that month due to discretionary
concessions approved by GoA (Control 2).
If GoA grants a duty-free concession to a hotel or other taxpayer and,
therefore, looses $100,000.00, that loss is entirely voluntary and within our
control. That seems only fair. There is no justice in having the British
taxpayer make up that loss.
(6). Expenditure must remain
within the overall three-month rolling expenditure envelopes set out in the
cash management worksheet (Control 3).
This is a technical control, which no doubt is understood by the Inland
Revenue staff, though it is meaningless to me.
(7.) The programme will be
reviewed on a three-monthly basis and the grant will be automatically
discontinued once recurrent revenue variances return to a manageable level of
5% or less (Control 4). This seems only
fair.
(8). Any
virements/reallocations greater than $100k will be deducted from the grant
(Control 5). A virement warrant is the
mechanism that permits the Minister to reallocate surpluses from one head of
the budget to another. This seems only
fair. GoA cannot redirect revenue from
one head to another and then claim a shortfall.
(9). The draft Public
Expenditure and Financial Accountability report will be used by the FCO as a
preliminary assessment of the public financial management systems (Control
6). This is a technical matter and no
doubt the Inland Revenue people understand its significance.
(10). The FCO can request and
review any GoA financial information. It
can audit the programme at any time (Control 7). This is an obvious and sensible control,
given the Chief Auditor’s repeated complaints about the negligent way in which
the GoA’s accounts are kept.
(11). The House of Assembly
must pass a Supplementary Budget for 2020 reprioritizing spending to meet
pressures arising from Covid-19 (Provision 1).
The previous Administration pretended to do this a few days before the
House dissolved, but there was no attempt to reprioritize spending.[1] To comply with this condition the new
Administration will be required to go back to the House with a more realistic Supplementary
Budget.
(12). No
new revenue or expenditure policy with material financial implications can be
adopted by GoA unless the FCO first accepts it (Provision 2). This seems reasonable. The FCO has a real interest in ensuring that
we do not fiddle our financial policies to unfairly take advantage of this
grant in aid.
(13).
We commit to maintaining progress in implementing a Goods and Services Tax
(Provision 3). We will prepare a draft
Bill and Regulations regarding the implementation of GST phases 2 and 3. This is not new. We have previously agreed to implementing GST
in stages.
Personally,
I have difficulty in seeing how GST can be implemented in Anguilla. Other than the banks, law firms, and major
corporations, few Anguillian businesses keep audited accounts. In Anguilla we raise revenue mainly through
indirect taxes such as customs duty on imported goods. There is little or no direct taxation on
income.
Few employers
keep accurate payroll accounts.
Businesses keep such accounts as they consider necessary for their own
internal purposes. Profit or loss is calculated
based on whether the business needs to show either a profit or a loss for some
reason, such as applying for a bank loan.
In the absence of accurate accounts, Social Security payments are
calculated and paid by the employer with no system for checking the accuracy of
the calculation. Hotel calculations of
receipts and payments of Accommodation Tax are taken on trust by the IRD. The Interim Stabilization Levy (a minimal
payroll tax) is always calculated and paid by employers based on the assumed
honesty of the payee. it is difficult to
see how our businesses can be expected to calculate and pay GST with any degree
of accuracy.
The
FCO cannot seriously expect our Mom and Pop businesses to suddenly purchase
computers, learn to use Quicken, open bank accounts, and begin to hire
accountants. We will have no difficulty
passing a GST Act, once the FCO understands that this tax will be (like many
others) entirely voluntary and generally incapable of verification.
(14). We
will begin the process of collecting overdue taxes by court process (Provision
4 and 5). So far as I am aware (after 40
years of the practice of law in Anguilla) no prosecution or civil suit has ever
issued for the collection of an unpaid tax.
We have instead used “administrative measures” to collect tax. The most we could do to satisfy this
condition is to carry out one or two prosecutions a year of the most egregious
offenders. There must be low-hanging
fruit in the odd hotel or guest house that does not pay its Accommodation Tax that
we can pick. Political backlash can be
minimized if we take the easy way out and start on a foreign owned business. Admittedly, it is mainly the local ones that
have figured out how to game the system.
(15).
By 31 December we will begin on-site tax audits on at least 20 businesses and
take the necessary action within 3 weeks after the audit is completed
(Provision 6). This is a manageable
condition. Law firms are required by the
Legal Profession Act to have their accounts audited to maintain their
legal practice certificate. Between the
Banks, international insurance companies, and local law firms, it should not be
difficult to find 20 targets.
(16).
We undertake to submit by 30 June 2020 a report on the expected impact of
Covid-19 on the revenue and subventions of statutory bodies (Provision 7). As the Chief Auditor never tires of complaining,
many of the statutory bodies and other government agencies in Anguilla do not
submit the audited accounts that are required by law. His constant chiding in his Annual Reports did
not improve this situation. It would be
a good thing for this programme to finally provide the impetus for this much
desired improvement to be made, even if we have almost certainly missed the
deadline.
(17).
Statutory bodies must present their budgets and work plans to Executive Council
by 31 July 2020 (Provision 8). This is
an existing obligation, but it is not certain how many bodies meet it. Government’s threat of non-payment of the
annual subvention should suffice to ensure compliance, even if the deadline
will be missed.
(18).
Each statutory body will be reviewed for contingent liabilities by 31
July. Each should prepare a plan to
improve financial sustainability and reduce expenditure arrears over the
following 12 months (Provision 9). This
condition will no doubt be a hardship to many good causes such as the National
Trust and the Health Authority. But in
this difficult time we must cut our discretionary expenditure to the bone.
(19). We will ensure the
preparation by all statutory bodies of quarterly financial reports by 30
September with publication by 30 November (Provision 10). Once the IRD prepares a common template for
this purpose and provides a minimum of training, it should not be difficult for
the Boards and Executive Directors of these bodies to comply with this
condition.
(20). GoA will achieve and
maintain an overall “largely compliant” rating from the Global Forum’s review
of Anguilla’s implementation of the Exchange of Information on Request standard. We will deliver an action plan to the UK by
31 December to show how we will meet any resulting recommendations (Provision
11). This international tax transparency
provision is a long time coming. In the
present environment it can hardly be contested any longer.
(21). We shall grant UK
Revenue access to data on Anguilla’s residency by investment programme by 30
September 2020 (Provision 12). If we are
going to accept the benefit of these UK taxpayers’ funds, we can hardly object
to giving the UK tax collector access to information about potential UK tax
dodgers.
(22). By 30 September 2020 we
shall begin sharing suspicious activity reports appropriate to UK civil and
criminal cases (Provision 13). At present,
these reports go only to local and regional bodies such as the Central Bank and
the Financial Services Commission. If we
are going to accept UK taxpayers’ funds, we can have no reasonable objection to
sharing them with the UK authorities.
(23). We shall allow by 28
February 2021 UK Revenue to obtain beneficial ownership information under the
Exchange of Notes signed on 19 April 2016 (Provision 14). We have already agreed to this.
(24). We shall provide UK
Revenue direct and cost-free access to our new company registry, once in place
(Provision 15). We can have no valid
objection. This is an international tax
transparency objective which when implemented will place Anguilla in the
forefront of company formation destinations.
Besides, it will not be long before it is an international standard.
(25). We undertake within 2
months of the last elections of 29 June to complete and submit to the FCO a
credible and achievable plan to reduce net debt to recurrent revenue to below
100% by 2025 and below 80% by 2030 (Provision 16). This condition may fairly be described as a
pipe dream. Who in their right mind is
going to travel to Anguilla for pleasure by ‘plane or by boat? If there are a foolhardy few, they certainly
will not be in the numbers needed to support our hotels, restaurants, and
related businesses. We can expect the
hard times that are coming to last for years.
The new normal will call for ingenuity and creativity for our people just
to survive. As with the UK Government,
our public debt must inevitably increase.
There is little hope of its reduction in the foreseeable future.
I do not consider these
conditions onerous or unreasonable. We
should embrace them. They provide a welcome opportunity for us to improve our
shoddy public accounting of the past. Dr
Webster says he wants to renegotiate the MOU.
In my opinion, there is nothing worth renegotiating, save for the now
obsolete timetabling which was made inoperative by the intervening general
elections.
