Don't discount human intelligence in tax crackdown
And so the Government has, just as the implementation of its new Tax Invoice Monitoring System was scheduled to begin, decided to postpone its ambitious plans.
The monitoring system, better known by its acronym T.I.M.S., is a plan to require all businesses to record every transaction they make as it happens and to submit a record to the Ministry of Customs and Revenue.
It was doubtlessly designed with the best of intentions.
Modelled on a similar initiative in Fiji, it is designed to crack down on Samoa’s hidden economy and the problem of businesses that are not paying tax.
But to say that it was met with protest by the nation’s commercial sector would be an understatement.
At a time when business is already grappling with a shrinking economy, many were reporting costs of between $6000 to $10,000 to buy new equipment to make them compliant with new reporting requirements.
Some larger businesses were reporting costs of up to $200,000 to comply with the new compulsory accounting system. (A free mobile-based version is available for download but many businesses claim it is not capable of keeping pace with the volume of the transactions they process).
Many of the businesses who have protested T.I.M.S.' introduction make a compelling argument: those who are already doing the right thing, paying tax and complying with the law are going to be hit with a financial penalty.
Meanwhile, there is no guarantee that businesses currently operating in an under-the-table manner, the stalwarts of the so-called black economy, will comply with the new rules just because of the introduction of an expensive computer system.
These businesses did not operate within the confines of the law before. So why should they be expected to do so now?
After all, dodgy businesses could simply buy compliant monitoring machines and feed them with fraudulent information. Regardless of how sophisticated the technology is, it is only as good as the information that is fed into it.
There is nothing that comes with the new scheme that obliges retailers to be honest, only to buy expensive technology. Arguably, it could even be giving the authorities a false sense of security.
The introduction of the new taxation system was to be brought in as part of a five-stage phased rollout, based on business’ size.
‘Group 1’ businesses that had been required to implement the new accounting system by July this year have now been granted until next year to comply with the new requirements.
This category included several larger businesses, including Chan Mow Wholesale.
Larger businesses’ criticisms of the new system were not just about its costs but its incompatibility with the world-class accounting systems they already had in place to ensure transactions are recorded meticulously, such as Xero and MYOB.
Many of these businesses are not only compliant with the law but they employ hundreds of Samoans.
The following four groups, composed of medium-to-small business, represented a politically insignificant voting group who were making their objections to Government known, both individually and via the Chamber of Commerce which produced some compelling research showing businesses were simply not ready for the transition.
With these businesses bumping up against a deadline - and Chamber of Commerce research showing that 44 per cent of businesses do not even have a point of sales machine required to be T.I.M.S. compliant - a Government back down seemed inevitable.
It seems only likely to infer that the Government’s about-face has only followed a flood of complaints directly to the Prime Minister’s office.
If that is so, then we can only praise the Prime Minister and his Revenue Minister for acting in response to the concerns expressed by these constituents. That, after all, is their job.
But perhaps the occasion of T.I.M.S.’ postponement is also a time to reflect on the amount of faith we place in automation as a solution to our problems.
People who evade tax do so creatively. They stash cash; create phoney transaction trails; and entire shadow businesses with the goal of fooling the authorities.
A machine-based system may well do a good job of identifying patterns that may or may not be useful for investigators following the trail of potential tax evasion.
But what can it do about those who are determined to create fake paper trails and who don't participate banking system?
Samoa’s business community is small. And the Government has previously identified and complained of those businesses who do not have bank accounts, for example. Starting with these companies might be a good way to identify people who warrant further scrutiny.
At its earliest stages cracking down on tax evasion is a cost that should be borne by Government - and it is a case for human, not machine-based, intelligence gathering.