GST Unconstitutional?

A friend telephoned me with a question.  Is the Goods and Services Tax Act (GST Act) unconstitutional?  I asked him what was the problem?  He responded that he had heard that the Anguilla Constitution did not authorize the ex-officio members of the House of Assembly, the Attorney-General and the Deputy Governor, to vote on a Bill in the Assembly.  They recently voted in favour of the GST Bill.  This allowed it to be passed by a majority of one.  If they had not voted, the Bill would not have become law.  What did I think of that?

I told him that in my opinion the ex-officio members were authorised to vote on any motion before the Assembly, save where they are specifically prohibited from doing so.

The public are presently being consulted by government on the contents of a draft new Constitution prepared by the Foreign and Commonwealth Development Office (FCDO) – based in large part on the desire of Anguillians for the proposed constitutional reforms.  If we object to ex-officio members voting in the Assembly, this might be a suitable time for Anguillians to insist that this is anti-democratic, and the new Constitution should provide that only elected members may vote.

Section 35 of the 1982 Anguilla Constitution says that the Assembly consists of the Speaker, eleven elected members, and two ex-officio members.  Since the 2020 general elections, seven of the elected members sit on the government benches.  Four sit on the opposition side.  The two ex-officio members also sit on the government benches.  That means there are a total of thirteen members of the Assembly, plus the Speaker.

On the vote for the passage of the GST Bill, two of the government Ministers voted against the Bill.  The total of elected members voting in favour of the Bill was five.  Six elected members voted against the Bill.  The two ex-officio members voted with the government members in favour of the Bill, making a total of seven to six in favour.

So, the question is, do the ex-officio members of the Assembly have the right to vote on a Bill before the Assembly?  The answer is to be found in the words of the Constitution and the Rules of Procedure made under it, the Legislative Assembly (Procedure) Rules 1976.

Section 53(1) of the Constitution says who can vote in the Assembly: “all questions proposed for decision in the Assembly shall be determined by a majority of votes of the members present and voting.”  Subsection (2) provides that the Speaker has a casting vote only when the votes are equally divided.  Otherwise, the Speaker does not vote.  It should be noted, by the way, that the international convention is that the Speaker usually exercises the casting vote to preserve the status quo, that is, they will vote so the situation does not change.

Section 55 is relevant.  It provides that, “any member may introduce any Bill or propose any motion for debate in, or may present any petition to, the Assembly, and the same shall be debated and disposed of according to the Rules of Procedure of the Assembly.”  In Anguilla, no one doubts that the A-G or the D-G may introduce any motion in the Assembly, and they occasionally do so.

Section 55(1) says that voting on Bills and Motions shall be governed by the Rules of Procedure.  So, what do the Rules say about voting in the Assembly?

The first rule to note is rule 45.  Paragraph (1) provides that, generally, voting is by voice.  Members respond with either a “Yea” or a “Nay” when called on to vote, and the Speaker declares the result.  When the Speaker declares, “The ayes have it.  The motion is passed,” no count is taken of who voted in favour, who did not, and who abstained.

Paragraph (2) provides that if a member calls for a “division”, the votes of the members are taken one by one, and each member’s vote is recorded in the Minutes.  Anguilla has had an Assembly to enact laws only since the previous 1976 Constitution.  The Council set up by the revolutionaries after separation from St Kitts in 1967 never enacted laws.  This vote on 29 July was, so far as I am aware, the first time in the short parliamentary history of Anguilla that a division was called for.

Never before had each member of Anguilla’s Assembly declared openly which side of a motion he or she voted for.  It cannot, therefore, truly be said that this is the first time the ex-officio members voted on a motion.  Though no count is taken on a voice vote, it must be assumed that the ex-officio members have always been included in the past among those who voted with the ministers.  As members of the Executive Council (ExCo) that is their duty under the principle of collective responsibility.

Section 25 of the Constitution may also be relevant.  Subsection (1) is the only section which limits who may vote on a motion.  It reads, “If a motion that the Assembly should declare a lack of confidence in the Government of Anguilla receives in the Assembly the affirmative votes of two-thirds of all the elected members thereof the Governor shall dissolve the Assembly and shall act in his discretion in appointing the date for the ensuing general election under section 64 of this Constitution” (my underlining for emphasis).

So, section 25 clearly provides that a vote on a motion of no confidence may only be cast by the elected members.  A vote of no confidence is a purely political act.  It would be improper to allow the non-elected members of the Assembly to have a say in whether the government should stand or should fall.  That would demonstrate a distinct democracy deficit.

This is the only case mentioned in the Constitution of the ex-officio members being prohibited from voting.  No other motion is restricted to the elected members.  What would be the point of specifically excluding the ex-officio members from voting on this occasion if they do not generally have the right to vote?

Other than section 25 (no-confidence motions) rule 46 provides one other exceptional case when a member is prohibited from voting.  That is, a member shall not vote where he or she has a “direct personal pecuniary interest” in the subject, ie, he or she has a conflict of interest.

From all the above, there can be no doubt that the ex-officio members of the Assembly have all the rights of members.  All members are qualified to vote, save where specifically prohibited.  In the case of members who also sit in ExCo, they are further constrained by the principle of collective responsibility to vote in support of every government measure introduced into the Assembly.  If they are unwilling or unable to do so, they should resign their office.

If the two ex-officio members declined to cast their vote in favour of the Bill and abstained, they would have betrayed their duty to ExCo.  Worse than that, from what we are told, the CDB would not have disbursed the loan and public service salaries would not have been paid.  It is unlikely that the public service would have been silent.  The likelihood is that the entire public service would have stayed home from 1 August.  The two ex-officio members would have been responsible for a major government crisis.

It will be interesting to see if salaries will be paid at the end of October.  Or will the FCDO permit more bank borrowing, or, perhaps, more raids on the Social Security Fund?  The banks and the directors of the Fund must know these loans will never be repaid unless the FCDO bails out the government again.  We have had more than half a billion dollars from them since the 2017 hurricane.  We have no right to expect such largess to continue.

GST Objectionable?

 

A safe forecast is that the brand-new GST will not be collected or paid by most businesses.  The present property tax law is not enforced.  We pay less than 40% of the property tax we owe.  No one is prosecuted for non-payment of property tax.  If they do not enforce the old tax laws, why should we expect them to enforce the new ones?  It would make more sense to forget GST and increase the taxes that are easy to collect.

I have no private, inside knowledge of the reasons why the government of Anguilla has proceeded at this time to have the House of Assembly enact the GST in the face of massive public opposition to it.  But they told us that the Caribbean Development Bank agreed to make an EC$20 million loan if they enacted the GST law by a certain deadline.

The World Trade Organisation rules, which we in the Caribbean are struggling to comply with, are that we should encourage free trade, get rid of customs duties, and, presumably, replace them with GST.  Customs duties are said to be a hindrance to international trade and objectionable in principle.

By abolishing customs duties in Anguilla, there will be a busload of customs officers freed up for employment as GST enforcers.  These officers can be retrained to go into supermarkets, hardware stores, lawyers’ chambers, accountants’ offices, hotels, luxury villas, and other applicable businesses to conduct investigations into their income to determine whether they are collecting and paying the correct amount of GST.  A great deal of re-training will be necessary.  While we are at it, we can retrain them to enforce all the other taxing Acts that we presently largely ignore.  If the Assembly does not abolish customs duties, there will be no staff to enforce GST.  But the truth is no Anguilla government is voluntarily going to send home public servants.

The Interim Stabilisation Levy may be considered the most abusive tax in Anguilla.  It amounts to an income tax of 3% on workers’ salaries and the incomes of self-employed persons above EC$2,000.00 per month, with a cut-off at EC$12,000.00.  It is not a tax on income generally but is a tax on small pay cheques.  That means that it is a tax paid mainly by persons of limited means (with the employer being made to match the payment).

If a real GST replaced the Levy, then the average employer would probably pay more tax than his or her employee would, which is only equitable.  The Levy should be abolished at the earliest opportunity.  It should not be kept for the Health Fund, as that will only be raided whenever government gets strapped for cash.  Like the Social Security Fund is.

It has long ago been explained why direct taxes cannot work in Anguilla.  First, most workers in Anguilla are public servants.  Or it was so the last time I checked.  The creation of a huge Inland Revenue Department (IRD) that will be necessary to collect income tax and investigate and prosecute offenders will be absurd.  We will employ dozens of new public servants to collect income tax mainly from themselves.  We cannot afford the present public service.  We should be reducing numbers, not increasing them.

Second, few persons would pay the true amount of tax that is due.  There will be a great deal of cheating.  It will surprise us how many supermarkets and hardware stores will suddenly admit to earning less than EC$300,000.00 a year, the minimum for the Act to apply.

The IRD employs no person charged with enforcing the tax laws of Anguilla by bringing a prosecution.  The police force has no officer trained in investigating tax crimes.  The Attorney-General’s Chambers employs no Crown Counsel with any experience in prosecuting tax offences.

The complex enforcement provisions in the GST Act are a joke.  In addition to there being no trained personnel to perform this function, the political will to prosecute does not exist.  Any civil servant taking steps to enforce the Act will immediately be transferred to the Ministry of Infrastructure and given the Sisyphean job of counting nails and screws.

The reason for this non-enforcement of tax laws, as every Anguillian will recall, was long ago explained by the then Chief Minister, “We cannot turn innocent Anguillians into convicted criminals!”

It is for these reasons that Anguillian taxes can be described as virtually voluntary taxes.  Only those persons who feel conscience-bound to pay taxes generally pay them voluntarily.  Everyone else ignores them.

The one minimal enforcement mechanism is the rule in the Land Registry that you cannot file a land document such as a land Transfer or a mortgage Charge unless you first produce a Certificate of Good Standing from the IRD shewing your taxes are paid up to date.  If you don’t want to pay your property tax, and wish to avoid all adverse consequences, the solution is to not file any land document in the Registry.  That is not a satisfactory substitute for enforcing the revenue laws of Anguilla.

Third, since many Anguillians are past masters at avoiding paying taxes and levies, the tax burden will fall heaviest on persons of limited means whose main income is a pay cheque.  The result is that in future, most employment will be paid for in cash with no records kept.

Fourth, and most importantly, the worker population in Anguilla is tiny, a mere couple of thousand persons.  The establishment of the large and complex income tax bureaucracy necessary to enforce the collection of taxes efficiently and fairly from every person in Anguilla will be a disproportionate burden on the few taxpayers.  My guess is that no enforcers will be either appointed or trained.

We are told that the only fair tax is the GST, which will supposedly be a tax on all applicable services purchased and goods sold.  GST will be fairer than either the Levy or customs duties because it will be paid by all persons in Anguilla, whether rich or poor.  Those who consume more will pay more.  It is their choice.  However, on past evidence the GST will be evaded by most businesses.

A fair and efficient system of GST depends on every qualifying business and service being computerised and keeping records and accounts.  Small businesses have never kept, and will never keep, accurate accounts.  Due to the historical absence of direct taxes, very few Anguillian trades, business, professions, and occupations keep accounts.  The result, we can be sure, will be that only those few transactions that are not feasible without a paper trail will attract GST.

I forecast that on the day before the implementation of GST, most commercial activity in Anguilla will go underground.  Invoices will cease to be issued.  Receipts will not be offered.  [On a personal note, I was recently refused a receipt when I paid for an item in a shop with a wink and the words, “Don’t you know GST is coming?”]

Soon, many commercial transactions that are presently carried out by credit card will be replaced by cash transactions.  And many transactions that are presently conducted in cash will be replaced by barter or similar untraceable methods, all to avoid GST.

If there is no intention to replace customs duties by GST, but to keep them both, then as previously explained, there will be little or no revenue from GST.  My recommendation would be to increase the present tariff on motor vehicles, spare parts, building supplies, alcoholic beverages, tobacco, perfumes, jewelry, watches, computers, other electronics, and all other non-essential items to, say, 150% of CIF.  The blow could be softened by removing all duties from common groceries.  Collection of these increased duties will not add any administrative costs.  The infrastructure is already in place.  That measure alone should bring in enough additional revenue to cover public servants’ salaries.  They, at least, will be happy.

 

GST Imposed?

 

On 29 July 2021 the Anguilla House of Assembly passed the GST Act into law.  Controversially, two Ministers of Government voted against the adoption of the Bill, while the two ex-officio members of the House, the Attorney-General (A-G), and the Deputy Governor (DG), voted in favour of the adoption of the law, thus ensuring that a slim majority of one was attained, and the GST Act was passed into law.

An uproar arose in the community when the significance of these events sunk in.  Members of the public protested on social media that the actions of the A-G and the DG contravened the convention that the ex-officio members do not vote.  The A-G and the DG never previously voted on any motion before the House.

Few appeared astonished that the two Ministers who voted against passage of the Act continued to function in government.  Every Anguillian schoolchild knows that ExCo is collectively responsible to the House of Assembly for the conduct of government.  Once ExCo has taken a decision, no member may express public dissent to it without resigning.  This is known as the principle of collective responsibility.  When the two Ministers did not resign their portfolios, they should have been dismissed by the Premier and gone to the back benches.  Instead, they continued to serve as Ministers as if nothing had happened. 

The main objection that was aired on the radio and other social media was that the Foreign and Commonwealth Development Office (FCDO) put unfair pressure on the local administration to enact the law.  This is a conspiracy theory.  It also misses the main point of the assault on the principle of collective responsibility.

The reason government insisted on passing the Act was that we were bound by our promise made in exchange for large sums of money to do so.  The lack of public consultation before the law was passed is a systemic problem in Anguilla.  It is standard operating procedure in Anguilla.  Until the present Speaker started insisting on it, it was almost unheard of for the public to be consulted on any proposed new law.  But whether there was adequate consultation or not, the Act had to be passed.

The FCDO say with justification that Anguilla’s government is too expensive.  In some cases, we employ five persons to do the job of one.  The FCDO point out to us that if we cannot raise the local revenue to pay public service salaries, we must either cut the cost of government or we must raise the taxes to pay for it.  They insist that there is no reason their British taxpayers should pay for Anguilla’s expensive government.

However, no Anguilla Government appears prepared to either cut back the numbers of the public service or reduce their remuneration.  It is said that it would be political suicide for government to do what is needed and make half the public service redundant.  The banks warned that letting go large numbers of public servants or reducing their salaries means that hundreds of loans will go into default, and social distress will explode.  The only alternative left is for us to raise our own resources to meet our public costs.

Meanwhile, employees in the private sector are not as pampered as the public service.  While hotels let their staff go for over a year on at most half pay, public servants continue to receive their pre-pandemic salaries in full.  There must be hundreds of private sector employees who are unable to pay their rent or their mortgage instalments.  Salt is rubbed into their wounds as the hotels curry favour by part-time employment of public servants.  These come cheap since there is no need to pay holiday pay, social security, medical insurance, or interim stabilisation levy on “temporary” gig workers.

The last Administration hired consultants to advise on the most appropriate way to raise additional revenue.  The recommendation was that a GST would do the job.  The Eastern Caribbean Central Bank (ECCB) and the Caribbean Development Bank (CDB) concurred.

Instead, we fell back on British taxpayers’ generosity to meet our over-indulgencies.  After Hurricane Irma in 2017, the last Administration got 60 million pounds sterling (EC$240 million at a four to one exchange rate) in grant aid from the FCDO.  This grant was labelled “humanitarian aid”.   In fact, it was earmarked for capital infrastructure, namely, the building of new facilities or the repair of damaged ones.  We had no reserves to pay for our structural upgrades ourselves.  In return, we promised that we would cease to rely on the British taxpayer and raise our own revenue in the future.  We would enact the GST Act.  We did not do so.

Early in the 2020 pandemic, and the closure of Anguilla’s economy, the previous Administration got a further EC$100 million in grant in aid.  This was intended specifically to pay civil servants for the following ten months.  In exchange, we promised again that we would either enact the GST or cut the cost of the public service.  We took the money.  We did not do as promised.  The previous Administration then lost the election.

The present Administration came into office a year after the first aid grant, accepting yet another EC$100 million from the FCDO.  We were given this aid on the repeated undertaking that we would do what the previous administration had promised:  either increase taxes to cover our expenses by enacting the GST or reduce our expenses.

The new Administration missed the perfect opportunity to bite the proverbial bullet and cut our public service expenses.  They had promised during the election campaign that they would not agree to accept the EC$100 million if it meant passing the GST.  But, once in office, they faltered and grabbed at the seemingly easy option of taking the money and agreeing in exchange to pass the tax into law.

The British taxpayers’ money did not last long.  It has run out.  Now, the CDB has agreed to make us a loan of EC$30 million on the same promise that we would pass the GST Act.  The CDB was more astute than the FCDO.  This loan was conditional.  If we didn’t pass the Act by a certain date, we wouldn’t get the loan.  We passed the Act just in time with the vote of the A-G and the DG.  Now public servants will get paid for the next three months.

The FCDO did not force us to pass the GST Act, as some are saying.  We took their money, and the money of others, on a solemn undertaking to begin to pay for our expensive government ourselves.  If we do not live up to our promises made in exchange for hard cash, then we are nothing but a bandit state.

We have no one to blame for our dire circumstances but ourselves.  Blaming the “white British” for our present problems is pure xenophobia if not downright racism.  Let us face it, Anguillians always delight in blaming others for our misfortunes.  We are never to blame.  It has always been so.

Poverty in Anguilla is being held out by the protesters against the GST as a reason why the GST Act should not be passed at this time.  There are some poor people in Anguilla.  The Annual Reports of the Department of Social Development do not provide any figures for the number of families in need.  A close examination of their most recent report for 2016 on the government website suggests the number is between 100 and 300 households.  We do have an obligation to prepare a social safety net to take care of those who through no fault of their own are unable to do so.  But even a blind person cannot be oblivious to the proliferation since Hurricane Irma in 2017 of SUVs and CRVs on the roads of Anguilla.  Even now, at the height of the Covid-19 pandemic, there are new villas going up on nearly every street corner in Anguilla.  There is no shortage of money in circulation in Anguilla.

One must conclude that Anguillians are generally a wealthy people.  There is no shortage of resources.  It is not as if we cannot afford to pay for our public services, which are presently subsidised.  Our culture of expecting all public services to be subsidised while we pay few or no taxes must change.  Our tradition of objecting to every increase in government fees and taxes cannot continue.

How we are going to pay for our public administration once the loan from the CDB runs out is going to be the question.

It will be interesting to see if the present Administration can continue to mamaguy the FCDO as the last administration did so masterfully.