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' , BRITISH GUIANA J>.

F I R S T L E G I s L .. A. T. T. "L (;' A s s E M B L y Under t.he BRITISH GUIANA (CONSTITUTION) ORDER-IN-COUNCIL, 1961 FIRST SESSION 1961-1962 BUDGET SPEECH by The Honourable, the Minister Dr. Charles .Jacob, .Jr.

of Finance January 31, 1962.

INTRODUCTION Your Honour, this is the first Budget to be presented to the Legislature of' this .country by an elected representative of the people.

Because of' this f'act, the occasion is not without some historic import­ ance.
The sie;ni:f'icance of' this break with the colonial past will begin to be f'elt almost immediately, as the ground is now being laid to strengthen our economic position ere.ting the rate of' economic growth through our own ef'f'orts.

and raise living standards by accel­ 2.

No poor country like ours, however, can hope to lift itself' up by its own bootstraps.
mainly f'rom the developed countries; but it must make sure It must seek help :f':rom external sources, that such aid is not used to create an economy which is sl.avish].y complementary to, or mere].y an appendage of', +.hat of' the lending countries.

We have to aim at the creation of' an internally-balanced, seli'­ diversi:f'ied, aus taining econonw • 3.
· Many colonies and f'onner colonies know, to their cost, that foreign investment and foreign aid in the past have of'ten meant no more than the creation of new sources of supp].y to suit the needs of the foreign powers: the metropolitan-colonial relationship �s 1 eft un­ changed; and there was oontributed little, if' aeything, to the alle­ viation of the poverty and backwardnes s of the native populations.

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4.

More recent].y, there have been welcome signs of' a change, in that s ome of the leading powers have been paying increasing atten­ tion to the need f'or a balanced expansion and diversi:f'ication of ·the 2 underdeveloped COlli'"l-brl.e�.

W"8, on our part, .

:hall certa:inl_y make every effort to obtain foreign eoonomic aid for our development welcome, and be gratef'ul for, all the financial assistance get on reasonable terms, and without political, military or other t:ha.t we can and shall strings.
5o But foreign aid is no substitute for self-determinat ion, either economic or political; nor is it a substitute for a determined effort to devote aa much of our resources as we car.

to accelerate rate of economic progress in directions that are bes+.

suited to the our continuous improvement in the living standard!:!

of the masses.
of the masses.

Our most important task is to divero:ify our econorzy, so as to be less dependent on a fev, staple e:>q?orts, which are exposed to the vagaries of' thfl world market, and less dependent al.so on imports for so many of our essential needs.

Indeed, the greater the effort and determinati on that we put into this task ourselves the more substantial the kind and.

amount of' foreign assistance we can hope for.

The world, as always, is more likely to help those who help themselves.

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6.

With the approach to Independence, it is natural and inev- itable that the role of the Government as a producer and as a provider of services should expand.

Indeed, the freedom to decide on the best allocation of the country's resources - what should be left to pri­ vate disposal, what used to meet present communal needs and what devoted to the future developme valu­ nt of the nation - is the most able benefit that flows from political independence.
It is the very essence of the policy of overall economic planning to which this Governm.ent is committed.

The expansion of the scope of publicly­ provided services even in those cotmtries, such as the United has' been everywhere in recent decades States, whose philosophy remarkable rejects the idea of overall economic clearly reflected in the size of their budgets.
In our ca.se, the planning, and this fact is ex­ pansion of the public sector will proceed in one additional direoti-On - will play -a greater role in the production of' goods public enterprise and services.

7.

In order that you may understand the e conomic and financ ia.l context of' the proposals speech, I should like now to tell you something about the signif'ica.nt which I shall put bef'ore you later in this economic and f'inancial data by which they a.re condi tl.oned.
The year 1961 has turned out in some respects Although the weather last year was less f'a.vourable for agriculture to be as prosperous as 1960 was.

than in the year bef'ore, exports of domestic produce have been higher ($11+2mn.

as compared with $125mn.

in 1960) - sugar and its by­ products about the same, and rice, some $4rnn.

(2%) higher,·ref'leoting 3 the exc•�1,t:i.ona.lly go od crops 01· tlie prcvic••w t1.4nui.

more, the result of the grov1ing arnl alumina.


Contrary to expectations, imports (�::153mn.)

yet!.r; ,;.mi 1d1wra.J.D, ;)Ol".le output of' m2..11ganc�e in 1%1 did not slip back after the sharp increase (by one-third) the ye..1.r before, but were some $6mn.

higher than in 1960.

The indications are that the country's to­ tal production - the gro1:,s domestic product at f'actor cost - was cer­ tainly, in spite of less favourable 1960 and probably in the vicim.ty of �t24-5mn.
apparently lovrer at least as high as in in weather, agricult 7.lre but certainly higher in minerals.

Capital inflow from abroad and investment continued at a high level in spite of' the comple•• tion o:f the major manean.ese ments of' our international an<l alwnina developments.

The firmer ele­ balance of payments (e0g.

the visible balance of trad.e had improved by some ��lOmn.

as compared with 1960) suggested no cause for disquietude.

ning dovm our external reserves.


But, paradoxically, we were run­ in This showed up most dramatically the external reserves of the commercial bankB, which ·svrung to a nega­ tive position, necessitating a tightening of' their credit.

It appears that while foreigners continued to invest money in our country, some of our ovm residents were increasing the scale of their investments abroad to an extent which our balance of international payments could not support.
This is the first significant fa.ct I should like you to bear in mind during the rest of this discourse.

8.

The other significant fact I must bring to ·your attention is the state of the Government's finances in relation to the Development Programme.

The Government has virtually no reserves.

reserves stand at $5 .• 2mn., but the greater part is tied up in advances and wor¥..ing sible consequences capital for Government enterprise.
Now, consider the pos­ of' this in a narrowly based economy such as ours, Nom:ina]J,y the where a large part of our production depends on the vagaries of the external market for tv10 major industries (sugar and bauxite) - a mild recession in only one of which could very easily curtail the Govern­ ment's revenues in any year by its direct and indirect effects by as much as 10% ($6mn.).
Consider, also, that while on the one hand the major recent industrial developments on the are now tax-holidaying, other hand the Development Programme is throwing huge expenditures on the Recun-ent Budget by wey of debt charges and the departmental facilities required to service these projects, and.

at the same time a rapidly grow:mg population social services0 To translate these f'acts into figures: revenue in is continually expanding the cost of the l..962 is not expected to be more than $2mn.
higher recurrent expenditure will be some 4�15mn.

higher - $�.

more in debt charges; $2mn.

more for agriculture, d.ra:i.nage, irrigation and than in 1960, but land settlement services for development projects; $�.

more on the maintenance of sea defences, roads and buildings;.

$4mn.

more on educational institutions and social services; together with#�.

4 more for increased pates of remuneration to Government employees.

9.
9.

The ability of aey government to cater for aocia.1 and de- needs cJearly depends on its will to secure public revenue velopmental for discharging these :f\mctions.

Taxation is thus not an end in it­ self; rather it is the essential economic objectives Vlhich give effect to the nation's highest aspira­ means for attaining those social and tions..
In c ountries in which tm power of the government to collect revenue is small - either because of' corruption the public administration, or inefficiency or because of' the unwillingness of of the p olitical leadership to impair in any way the privileged treatment of powerful vested interests - these aspirations mu.st of' necessity remain unfulfilled; and despite all the brave talk of economic and social development, their peoples are condemned to continued misery and to bot!
:!-,.economic and cultural stagnation.

Taxation must thereforF.!

not onfy be an ef':f'icient producer of revenue to finance public ser­ vices and desirable economic activity, but also serve the subsidiary purpose of' redistributing wealth and income.

THE CASE FOR TAX REFORM 10.


In British Guiana we are reJa ti vely fortunate at least in relation to many independent countries of Latin America in that there is a well-run administration f'or levying and collecting a progres­ sive tax on incomes and on inheritance.
Unfortunately, cannot be paid in respect of import and excise duties, but I give no­ similar tribute tice that maladministration and irregularitie s will no longer be tol­ erated in the Customs and Exoise Department, f'or about one-third of our total revenue.

Our tax system, neverthele ss, which is.


now responsible :from the point of view of fairness and equity, and of equal treatment of all citizens in relation to their true economic pay, reveals very important gapso The first duty of the Government is, pov,er or ability to wherever as well as the fairness of the fiscal system.

possible, to bridge these gaps and to increase the e:f'.f':l.oiency ll.
To assist the Government to fulfil its duty in this respect, Mr. Niohola.s Kaldor, a Fellow of King's College, University of Cam­ bridge, and a noted authority on fiscal matters, was invited.under a United Nations Technical Assistance project to advise on our tax struc­ ture.
According to his findings, the most important reform (at lea.st :from the long-run point of view) is to broaden the scope of direct taxation through the introduction of a tax on ca.pi tal gains, an annual tax on net property, and a ta.Jc on gi:f'ts o These capital taxes, to­ gether with the existing income tax, will constitute a comprehensive and integrated system sure that the tax burden imposed on the various members of progressive, direct taxation which will en­ of the 5 community in in fair approrlrnation to their true taxable capacity.
12<> The taxes which I shall propose later erist.in varying fonns in the fiscal systems of a number of Western countries, including those of Scandinavia, and have recent],y been introduced in India and Ceylon.

Since these truces are new, as far as we are concerned, I pro­ pose to devote some time in this speeJh to a statement of the c ase for them.
l.3o There is a great deal of ignorance and confusion on the part of some people where the question of income taxation is concerned._ This is not whol.Js' their fault, but part],y that of the existing social order.

If we believe in a fair and just society, and wish to do more than mere],y talk about it, we must end fiscal discrimination in favour of particular classes.

Everyone should contribute to the cost of' government accord.inf?

; to his ability to pay.


But this ability has been based on a, restricted def':i.ni ti.on of incomee And any tax system based on a too narrow concept of income is bound to mete out ,mequal treat­ ment .to the different cl.asses of taxpayers.

It is the·settled policy of this Government, there�ore, to adopt a more comprehensive defini­ tion of income as the tax base in order to inaugurate a more equitable system of' taxation.
Social justice demands be allocated fairly between the different members of the community.

that the burden of' taxation If those who make capital gains are required to pay nothing­ as at present - while wage-and salary-earners pay a fair share of the burden of taxation, there is a clear case of inequ:Lty between the two groups, restmg on the restricted def'inition .of taxable income.
The exclusion of capital ga:ins from the scope of income taxation can­ nqt be defended on grounds of equity s:ince it involves the pr:1.vileged treatment of a particular class of taxpayer as against others.

The defect of our present income tax is that it excludes one important category of income - capital gains - and is therefore weighted in f'avo.ur of' the propertied class.

l5 o My Party has long recognised the need for tax reform in British Guiana for two major reasons.
The first is the problem of underdevelopment.

To overcome this, current revenue from taxation must be higher to meet the needs of a dynamic community with a rapid growth of population and its requirements for speedy economic and social d evelopment.

The inadequacy of public revenue restricts diture in such fields and makes impossible as health and education expen­ the financing of developmental projectso 16.
The second major reason for f�scal reform is to curb economic inequality by redistrib-1ting wealth and income in the interests of - 6 - social stability and the constitutional evolution oi' a peaceful., dmno­ cratio society.

17.

The exist:ing tax system is tmjust in its incidence because in favour of income f'rom ownership of' capital as it discriminates against income from work.
This weighting favour of' the weal thy classes retards the growth o:f the econonv in thEtt of' the income tax basis in it directs a considerable proportion of the national resources not to desirable development and essential social services, but to conspicuous consumption means high national and speculation in real esta;teo expenditure on non•-essential LtlXt.Uy consumption, which imports, burdenr,the balance-of-payme nts unjustifiably.
An impartial system of progressive taxation, which distributes the burden equi i;..2bly betwec,11 those who derive income from property and those who get their incomes from work is an urgent necessity.

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18.

I wish to emphasize, for th_e benefit of those who might characterize the fiscal reforms a.a disi.."1centives on the contrary, such reforms would mean a diversion to developmen from of resources t., that, undesirable consumption (in our present circumstances) and speculation investment, to worthwhile national reforms, and thus to a rational resources.
Another desirable but long-term e:f'fect of 1:Jrn not to be measured in quantitative terms by their revenue allocation of scarce yield, is the degree of national consciousness and class cooperation which they oould induce.

19.

Since our income tax operates between the different kinds of' income-receivers, in a discriminatory rash.ion the·refonns are also intended to make a contribution to the democratic ideal of equality of treatment of all citizens.
Honourable Members should bear in mind that the taxation constitutes of income and prof'its and other personal only a part of the total taxes imposed by the Government.

and direct taxes The great bulk of indirect taxes on commodities and transactions ( which make up the remainder) very largezy ralls on the great mass or consumers who derive their income from work and not from property.
If we take both direct and indirect taxes into account, there is little doubt that the owners of' capital do not bear as much of' the burden which an impartial allocation would require., 20., This Government regards the effective taxation or capital profits as an essential feature or an equitable system of income taxa­ tion, because such gains are an important source or income of the la,rge owners of' property.
Moreover so long as this discrimination is maintained and such gains remain untaxed, there are innumerable kinds of manipulations if it were in the nature of a tax-free capital profit and thereby by which a taxpayer can dress up taxable income as reduce his tax liability even further.
The exemption of capital gains 7- :from taxation, which obtains in Britain and her colonial empire, is the single most glaring i'eature of "one law f'or the rich and another law £or the poor" - an inequi-bJ peculiar to many Western nations, some of' which do not tax such gains as fully as :fairness demands.

In the United States capital ga:ins have long been brought within the scope of taxation, and former British colonies like Incl.ia.

and Ceylon have done the same thing since their independ.enceo 21.
The other major gap in our tax system is that it gives no to the taxable capacity inherent in the ovmership of pro­ recognition perty (or capital wealth).

A system uf taxation based ·and partly on net property is more equitable than one based on income partly on income alone or on propert-y alone.
The reason for this is that the possession o-£ disposable vtealth endows a man w ith spending power quite apart from the money income which such wealth yield.s o A man who possesses $1001000 in f'orms of wealth that yield no income is clearly better of'.f' than another man who possesses neither wealth nor income, even he is not as weL1 off' as a third man with similar wealth and a year].y though money income.

Yet the :first man pays no more direct taxes than the aecond.
Without a supplementary tax on property imposed alongside a tax on income, it is impossible to do justice, not only between wage­ and salary-earners on the one hand and property-owners on tre other, but also between dii'.f'erent property-ovmers.

Some countries recognize the f'act that income from property (so-called unearned income) possesses a.grea.ter taxable capacity than income f'rom work (earned income) and attempt to make allowance f'or this by taxing income f'rom work at a lower rate.
But this does not adequately compensate f'or the greater bene:fits derived f'rom tl:e possession of property.

And this is why Norv,ay, Sweden, Denmark and maey of' the other progressiv e countries do not recognize money income alone as a true yardstick of' taxable ca.pa.city.

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22; Moreover, f'rom the point of' view of administrative ef:ficiency, it has been experienced property improves the ef':ficiency of' income tax administration.
proposed, theref'ore , t o introduce a tax on net property owned (assets in these countries that an annual tax on net It is minus liabilities) which will embrace assets of' all kinds_, not mere]y real property.

This tax will be a relativezy modest one as it is a supplement to, and not a substitute f'or, income tax.

It completes income tax, the top rate of' which will not be increased. '

23.
23.

Finally, Your Honour, there is need to buttress the existing Estate Duty by a gii't tax, f'or gratuitous transf'ers � vivos.

The need to limit by the instrument of taxation the right of an individual to pass on his property to his heirs and_ successors is no longer J disputed today: it is ur_.

;;irable oi' an in­ to a.1r0id the ill-effects creasing concentration of wealth in the hands of a i'c"w privileged families.
If the right to pass on a fortune is limited, through a progressive Estate Duty� it is quite logical to limit also the trans­ fer of property by inter vivos gifts.

If this is not done, there will be continued avoidance of.'

the inheritance tax (Estate Duty) by gratu­ itous transfers of property during the lifetime of.'

the donor in spite of the provisi.on in the Estate Duty Ordinance which makes such trans­ fers exigible to estate duty if made within three years of' death •.
The proposed gl.i't tax, then, is to close a loophole in our Estate Duty ·legislation and bring it in line with the tax policy of a large num­ ber of countries, including the United States, Australia, Canada, India and Ceylon., 24.

· The proposals for all of these new taxes aim at broadening the base of taxation through bringing to charge wealth accrual n_ow exempt from taxatioh.
Progressive personal taxation and death duties have not succeeded in br:inging about the degree of distribution of wealth and income that was their avowed objective.

The reason is to be f'ound in the numerous loopholes of various kinds that have been tolerated and, in some cases, deliberately tures, and the inability of the tax administration to force a full nurtured by past legisla­ L .

disclosure of wealth and income.


Honourable Members will, I am sure, welcome these proposals to counter avoidance and evasion and to strengthen the hands of the tax authorities.

25.

In addition to a more equitable fiscal system, we also .need one of greater efficiency o;f tax administration if we are to fulfil our national aspirati.onB.
The case for these new taxes - the tax on capital gains, the annual tax on net property, and the tax on gifts - is ·thus very powerful from the point of view of' enforceme nt.
· All of the taxes are self-checking in character, both in the sense that con­ cealment of items to m:iJlimize liability to some taxes may involve an added liability with r egard to o thers o r disclose evasion of another tax, and in the sense that information :f'urnished by a tax.payer for the purpose of preventing overassessment with regard to his own lia­ bilities by other taxpayers.

automatically brings to _light hidden receipts and gains ma.de 26.
For example, gif't taxation discloses capital transactions and thereby limits the evasion of income and inheritance taxes, and assists in the administration of the net property and capital g ains • taxes.

The net p roperty tax foroes the disclosure of the balance sheet {assets less liabilities) of the better-off individual each year and this needs to be reconciled with his profits and with his property 9 transactions reported for the capital gains tax.
In sUI:Una.ry, the new I • and old taxes will provide a system of ta::xation wh:i.ch is as complete, just and efficient as human ingenuity can make it.

REVIEW OF EXISTING TAXES AND THEIR REFORM 27.

Apart :f'rom the proposed t�ree major additions to our tax system·, I intend to increase the efficiency of the fiscal instrument by a series of new provisions ot.her forms of avoidance and evasion and to abolish existing anomalies.
Tax Ordinance to counter in the Income 28.One of the nevi provil'lions relates to the taxation o'f: com- pa.niea O\med by non-residents.

It is well knolm that companies which a.re merely branches· or subsicli.

aries of' companies resident abroad can understate their true profits by over-invoicing imports or under­ invoicing exports, in so far as they trade with their associated overseas companies.
I propose therefore to strengthen the Income Tax Ordinance by additional provisions under section 33 whereby the tax­ able profits of any such company will be deemed to be not less pro­ portionat e],y to its turnover than the total profits 0£ the entire group o'f: associated companies a.re in relation to their total turnover - unless the company can prove to the satisfaction of the Commissioner of' Inland Revenue that no sien,ificant.
part of its transactiono was conducted with or i.l'lfluenced by non-resident assoc:iated companie�.

29.·1 propose, also, to have Section 48(3) of' the Income T� Ordinance amended to permit a provisional assessment based on a per­ centage of' the actual or estimated turnover of' businesses or on a f'a.ir ·estimate of' professional incomes i� tax returns a:re not or vocational ma.de by the due date.

This will increase the expedition and the effi­ ciency of the income tax levy.
30.Appropriate amendments will be made to provide f'or a minimum income tax payment based on an assumed income of.'

2ft of' turnover in the case of mining, manu'f:acturing or mercantile business (not agricultu-re), even where a. loss occurs - adjustable, however, against future profits, so that unless the busineos carries forward lo3ses in<lefi.ni tely, tax over its lif'e will f'all only on pro.fits.
Bus:u,esson will no lon�nr be able ·• 0 to operate year after year -without payine anything in tux, by showing a continuing loss in their accounts.

10.

31.

With reeard to the treatment of trade losses, the existing law provides that a business loss can be set off ar,ainst income from othe:r sources in the same year and thdt in so far as it cannot be so set off, it can be carried forward indefinitely, but only a,:ainst future income from the same source.
These provisions arc still open to a '7::-13 t :io11l of abuse in that it is possible for a taxpayer to build up ,1s:,ets by i.ncurring continued losses in one business and financing it hy saving in tax fr,,m his income from other sources.

I therefore propose that the provisions should be further restricted by allowing only the indefinite c�rry fonmrd.

of loss from the sa:ne source, but disallo,Ting the set-off of loss acninst other income in the same ye2.r.
I rep·nrd such a restriction as p:,rb.cu.1Yrly irnporb.nt si:1.ce otherwise some of the buoines,;;es which ·are n01, en.joy i nr: tax holidays (and which show losses for a. number of years ;ifter the end of -l;he tax holiday period on account of their right to treat all capitrJl expenditure incurred during the tax holiday period as if it had been in­ curred in the year preceding the first year of assessment) would be able to offset these losses a�ainst other profits, with the result that ·revenue would be further reduced w hen the tax hol i.day period comes to an end.
On the other hand I do not feel in view of this chanee, that the current re­ strictions which limit the set-off liability in any year are jw,tifie of past losses to one-half d in the case of tho\e cmterpri h.ut:i.on recommended 'l l contri of the tax scs which c1boire.

This would be liable to the minirnnm ,:--.nrn.k will require amendments to the exj_st:i.n� Section 15 of the Income Tax Ordinance.

32.
32.

The current tax holiday provisions for the encoura.,:ement of new enterprises are excessive and of cloubtful efficacy in promoting the indus­ trial development of British Guiana.

These privileges not only allow a complete tax holiday ture for 5 years, but also allow all capi ta.l expernli incurred during these five years to qualify both for initial and deprecia­ tion allowances after the tax holiday period comes to an end.
My own feel­ ing is that if foreign enterprises wish to come here they W'ill do so when it is to their advantage - which means when the opportunities for making - profits are sufficiently large as not to be seriously affected by questions of taxation.

It must also be remembered that in a great many cases the benefits of these tax exemptions do not accrue to the companies or their :!.
• shareholders but to foreign Governments which are thereby enabled to tax the profits originating in British Guiana without having to allow for double taxation relief.

I therefore recommend that the whole of the exist­ ing Section 2 be wi thdraim and replaced by a new provision under which pioneering businesses which are nrirni•rily con•�<�nind with mining, manufac­ 11. turing or proces�inp.
: acti,ritic::i will be n.Jlow,�d to write-off 70/; of any capital ex1.1<mditure inc1irrfld d:irin� the fir:�t five yeaTs of their operation in British Guiann.

a::: a charge on thEJi.r current profit.

This would also mean thnt any dividend paid by' such conrnni1rn would he tnxable irrespec­ tive of whether the comp::>ny ns such is char,!

:,(?-3.ble to tax or not.

The existing privilei_;es of companies which h,'l''"!

already bei:m p;rnntecl tax holi­ days will of course be protc1ctP.d.

33.
33.

The existinir.

provinionn rolotint:, of 40;� which is in ndoition for an allowance duced in 1951 provide to initial ,'.\llo\\'·incee intro·- to the depreciation allowance (normally 10;1') which is e;ivcn in the first year.

These provisions are unduly generous Rnd involve a serious loss of tax (particularly in the case of foreign companies), which averaged $500,000 in recent years.

It is therefore proposed to reduce initial allowRnoe s for non-tax-holiday companies to 2CJ)6 40:�.
from the existing 34.

It is my conviction that some restriction should be plnced on deductible expenses of busfoesses, and I therefore propose that the powers of the ColllJ'1lissioner be strengthened by approprintely amending Section 12 of the Incom� Tax Ordinance.

Entertainment expenditure will be explicitly ?

disallowed by adding to Sectjon 14 of the Ordinance.
Expenditure on advertising will only be allowed as a business expense in so far as it �lates to the sale of such goods and services the year in question and not to general which produce or "prestigen advertising income for and to a limit not exceeding-¾· of 1% of turnover.

35.

At present the prof�ts of a business partnership must be assessed and charged individually on each partner.
This often creates difficulties, e.g., when a person resigns or goes abroad, etc., since a tax due cannot be recovered on the assets of the business as such.

I propose, therefore, that the methods of assessing business partnerships should ue assimilated.
to the methods in force in the case of companies: that is to say, the profits of the partnership should be assessed as such (at tRe 45% rate) and a certificate be issued to each individual partner him to a entitling recovery of tax on his aliquot share of -the profits in exactly the analogous manner to the tax deducted on the dividend of the shareholder.

The appropriate addition to the Income Tax Ordinance will be made.

36.
36.

The existing provisions in respect of directors' emoluments are open to abuse in the case of private companies which frequently appoint family members as directors with considerable emoluments so as to reduce the busi.ness liability to tax.

It is proposed, therefore, to introduce 12. provisions to dioallow as an expense any excessive char&e for directors• fees.

37.
37.

In order to improve the collection of tax on the income of non- residents chargeable to i.ncome tax under the exiating law, I propose the repeal of Section 39 of the Ordinance and the substitution therefor of provisions for the deduction of tax at the appropriate rates on every dollar of interest, dividend, rent, royalty, annuity or annual payment payable to a non-resident person and at 45� to a non-resident company.
38, It is proposed to amend the Income Tax Ordinance to provide that compensation received for the termination of any contract of employment or service shall be chargeable income.

The amendment will also prevent the avoidance of tax by the payment of medical, dental or optical expenses or any passages to directors other than "wholetime service directors" and of expense allowances which are not .in fact spent in the production of charr,eable income.

39.
39.

Because of a Court ruling that a per�n once assessed cannot b& required to furnish additional information except he appears to have been underassessed, I propose to have the existing law amended to permit reie­ vant additional information to be supplied whether or not a person has been previously assessed.
Other amendments to the Income Tax Ordinan�� 0 will provide that non-compliance with a requirement by the Commissioner for the keeping of records, books or accounts for purposes of the tax shall constitute an offence ar,-ainst the Ordinance; that non-complianc e with a requirement by the Commissioner for ob.iectors to his assesf:'.rn1:111t to furnish particulars and to produce docume.nts relating to income, 11m,ets and liabilities shall constitute an offence; and that there shall no longer be the five-year time limit for assessment of t.nx on income in cases where tax has been escaped ia 11lso proposed flat to 12,Jt per annum in the first year and to 15% per annum thereafter by fraud or gross or wilful neglect, for late payment of tl1x from '»� to revise the penalty Jt on the unpaid amount. "
40.

The hfotory of taxation in British Guiana has been onP.

of avoidance and evnsi.on.

Our tax system iB a fantastic and loopholes throu[ih preferences, special gasp for brenth.

Effcictive C the lkv,)rnW hanrls o: outl.in;::l n rn:r .. 1• , or :ot,,p:, to be: b.kcn to coimV,r c1void11nce action wJll now be faken to strcnethen in l'C'!�nrd to rro'.

'lecubons for b.x offence�.

which the economy a.lrti('.rly is forced to I lmve the by t:mGle of inequities► 0 - .i..:.. l .

.
.

plugging up loopholes in the existing law.

Revenue cannot enforcement 13. be allowed to remain in its present weak position, in which it is incum­ bent on the Commissioner of Inland Revenue to prove that a· person "knowingly" made a false statement or a false declaration.

Documentary proof of such "knowledge" is in general impossib-le to obtain.

It is there­ fore proposed to amend the law to provide in which for the circumstances such knowledge must be presumed.

41.
41.

A•Bill will be introduced shortly proposing the amendments I have discussed above and certain other minor amendments designed to increase .

the efficiency of· the income ·+.ax levy.

This Bill will also pro­ pose certain amendments to the rates of tax and the personal tax allowances, which I shall discuss later in my speech, and will also contain the Pay­ Aa-You-Earn provisions.

I ....

.,; 0 I --·-·------------------------------�---------------- 14 ImSULTS OF 1961 R.F;CUPJu.

:NT mm.:;.E�'.

42 ,.


The 1961 Estimates as approved by the Le,;islr, tive Council called f'or an expencliture of �54.,95mn.

Supplementary estimates during the year added ��.9mn.,, .so that the total 1?61 provi:don was $59.85mn.

The Revised Estimates $2.4-5mn.

less than this - a total of $57 .,lii)Mn" T"ne net additional of actual expenditure during thci year were some expenditure over the original appropriations was therefore ��2.45mn.
4-3 0 The Approved 1961 Estimates made no provision for the in­ creases in the rates of' wages and of' "B" and 11C salary scales approved 11 late in 1960 and ear]y in 1961.

These increases account i'or about $J.mn., of the 1961 e:>:pP-'1.di def'erred income-tax lio.bili ture.

Also, no provision was made :for the ty of' the British Guiana.

Electricity Cor­ poration penditure side as a loan :from the Government ($0.7rrrn.)
shoVTn as a revenue receipt but treated on the ex­ to to the Corporation help f'inance the purchase of' the Georgetown electricity undertak:ing.
The major ( over ��50,000) i net deficiency of' the transport services ($4.61+,000); pensions and terns of' other supplementary provision were: gratuities ($4-17,000); refunds o:f revenue (a contra item o:f $225,000); maintenance of' public reorganisation of the ministries ($275,000); roads ($180,000); losses on the Milk Pasteurisation ($150,000); Plant ($:104-,000); medical.

staff' rnJli-5,()(l)); losses on B.G.


leave passages Airways (�:84.,000); printing stamps (fi:70,000); the conveyance of' mail (��f0,000); Customs overtime U�50,000); rates on Government pro­ 0 perty ($51,000); telephone installations, etc.

($51+,000); and veterinary preventive measures ($50,000).

411-.

The Revised Estimates of revenue ($60.2mn.)

Estimates.

Of this increase in 1961 are $2.31W1o is $3o6rnn.

more than the Approved to import duties and $0.6mn.

to income tax.
to income tax.

Contrary.to attributable e."Cpectations (evidence of heavy stocld.ng o:f consumer goods and excep­ tionally heavy imports or capital goods suggested good probability of' some slipping :in the level of imports in 1961) the that there was ti.

· sharp increase in imports and import duties (23%) betwee�· 1959 aria'' 19ID by an increase of 5% between, has been f'ollowed 1960 and.J,961: _;,'.

ap> I'· ,.

� ; .,, ., • .

.

.

.

,, .�\.-.·· .

·\ •, .

..

,;4V.�'.

: f �.'

:,i; .,.


"-> � � in' ;the ;in6ome-· estimates since 1959.

The increase: increase of' nearly one-third tax yield over the estimate ($0.6mn.

or about �) is �it·�-,_�h�-����� margin of error in maJr-.

:uig income-tax inevitably on the low side) on the b�sis of' enqlrl.ri e:i�::f;��,'.li{fu ge export companies in advance of the completion of their f:i.

"lal accounts f'or the year.

The remainder.

of' the revenue· estimates·�.

whicq 'amotmt .

�· •·.

.

.

·, .


;' ·\- ·1.,·� .. ':.�::�,:,; ... ;:� \��,�-.

: ,•• ·.

,· .

f'r:r-,�<?�?¥.

; :;i?

',�t€lt:iB�;.�he __ to about one-third of the ,total� accouiits' ,:.

_ Approved Esi;:imat�s, the ·noticeab�e ·cifgo/�)':•,rui d· .· '.

excise ($450;000)·, �yal�ies ($250,000), _·e�t4� less '.

'tha:h-:::''' telepho�e charges ($130,000).

Export duty yielded $150,oo · ��rd :•'v'Ja'ifticin�(�'.��t�fh�':·rum >>·{· :-;-a�-fy' (a.J.most :Gi�a�b_�·'.

:� d'·; .

cr 0 the Approved Estimates.


15 45.The revised estimate o-f' the 1961 surplUB is $2.emn.

- com­ pared with the orig1nal estimate of' $1.

7rrrn.

This surplus will not be available be absorbed by retrospective payments of for tr-ansfer to the Development Fund s1nce it will in effect increased sa.laries f'or 1961.

1962 RECURRENT :ESTIMATES 46.The 1962 Draf't Estimates of' Expenditure call f'or provision of' $6.5.6mn.

- inchlding $2.6mn.

for reviaed salaries living allowances to pensioners.
The proposed and cost-of­ is $8o2mn.

more provision than the 1961 Revised Estimates debt charges account provision 1 Personal falls under 1 of' which increased for nearly one-half.

About ��4mn.

of this added rates of' salary and 1 1 votes - $2.6mn.

for in­ Emolurnents creased salaries' eto.

; $0.9mno for additional teachers, teachers' etc., in the primary schools; and $0.4Jnn.
for new salary increments, poats0 Under 110ther Charges the public debt accounts development schemes 11 votes (also increased by about $4mn .. )1 f'or an increase of' $1.,4mn.

; services for for $0.8mn.

; the maintena..�ce of roads, buildings and sea defences for $0.7mn.
; and civil aviation for $0.3nm.. are proposed more than last year in expenditure 47.Major increases 1 s) - due to the doubling of the more) - due to M:inistry and provision ture ($130,000 size of' its membership; provision for a full year's working of' the nenv f'or a Central Planning Division; Resources (eog• f'or Black Bush Folder)., agriculture� drainage and irrigation ($6oo,ooo more) - due to the expansion .under the Premier ($150,000 under the Ministry of' Natural of' iand settlement under Legisla­ services under the impact of the Development Programme; under the Ministry of' Works and Hydraulics ($870,000 more) sion f'or the maintenance of' roads and buildings Ministry o'f: Home .Af'i'airs - $160,COO more on Fire Protection and Prisons., of'fset the population census and the general of' Labour., Health and Housing ($26o,ooo more) - mainly on salaries of by savings on last year1s extraordinary expenditure on - increased provi­ mainly; under the eleotions; tmder the Ministry medical sta:ff'; under the Ministry ,:Jf Finance ($1601000 more) -includ­ ing increases of $2.50�000 for the Overseas Service Aid Scheme (against revenue item) and of' $30,000 f'or which there is a correspo!lding staff' f'or the Accountant Ge:�era11s Department partly offset creased by savings on leave passages; under:-the Ministry of' Social Development a.nd :Education (increase o-f' $1183(),0)0) - mainJ.y for educational stitutions in­ (including an allocation of' $2251000 for a College of' in­ .. 0 Liberal Arts and Science :for
 Britisn Guiana), old age pens:it>ns and public assistance; ($260,0CX> under the Minis try of Commun.i.oa.tions 16 more) - reflecting an increase of $370,000 under Civil Aviation, off­ set partly by savings on other heads; under Audit ($4-0,000) for im­ proving the efficiency of the audit services; under Public Prosecu­ tions ($60,000) - a new service partly offset by saving under Attorney General; under the Public Debt ($1,400,000) - reflecting the growing b urden of debt charges consequent on loan financing for our development programme; and $2.6mn.
under Revision of' Salaries, etc.

4.8.

The estimates of' 1962 revenue are lower than the revised estimates f'or 1961 - $58.5mn.

as compared with $60.2mn.

It appears that sugar prof'i ts will be down and that the taxable profits of' the bauxite industry will be reduced by heavy initial allowances.

It is estimated, therefore, that income tax will not yield more than $18mn.

($1olmn.

l ess than last year's revised estimate).

It is difficult to say what the yield of'\import duties will be this year.
If' the c redit squeeze continues, it may well be substantia.l.ly below last year's.

The estimates assume that import duty will yield $2100mn.

- $l¾rnn.

less than the yield last year.

Other tax revenue (the only large item being the rum excise - $5 ..

0mn.)

has been assumed to be the same as last year's� Non-tax revenue should be about $1.mn.
higher than thi� y ear's, the main increases being under cuITency profits ($356,000), overseas aid scheme (a new contra item --$250,000) and interest, rent and royalties ($UO,0OO).

4-9.

With revenue at $58.5mn.

and expenditure at $65.6mn., there will be a defici ency of revenue over expenditure of $7 .1.mn� DEVELOPMENT EXPENDITURE 50.

The Revised Estimates of Development Expenditure last year totalled $22mn., of which $2.4mn.
was financed from the balance at credit of the D evelopment Fund (reflecting the large revenue contribu­ tion of the previous year) at the end of 1960, $6.4mn.

from Colonial Development and Welfare grants, $0.2mn.

from United Nations Special Fund grants, $2o5mn.

from a local loan raised during the year and $8.0mn.

from 1961 drawings on the United Kingdom Ex:cheque� Loan.

The apparently overdrawn to the extent of Development :fund was therefore $2o5mn.

at 31st December, 1961.


However, an additional drawing of $1.Dm.

on the Exchequer Loan towards 1961 expenditure was approved and effected early in January this year; there are outstanding claims ($0o9mn o) for reimbursements against the loan from the International Ba.nlc f'or Reconstruction and Development for the Credit Corporation.

; and it is more than likely that the actual expenditure last year was somewhat Jess than the revised estimates.
I t is probable therefore that 1961 development expenditure is fully financed.

- ------ 17 51.

Of the expenditure of $22mn., the Black Bush and the Tapakuma drainage and irrigation schemes account for nearly $3.7mn.

; road.3 for $2.9mn; industry and credit for $2.8mn., including $2mn.

for ·the Credit Corporation; sea and river defences f'or $2o2mn.

; the t ransport services for $1.3mn.

; housing for $lmn.

; schools f'or $0.9mn.

; agriculture and land d evelopment schemes for $1.6mn.
; electricity development for $0.7mn.

; and geological surveys for $0.5mn.

52.

The proposals by Ministries for development expenditure in 1962 total some $41.mn.

For financing this expenditure we can count on $6.4mn., :from Colonial Development and Welfare grants; $0.lmn.

from United Nations Special Fund grants; $2.0mno ·from local borrow:ing; $8mne from United Kingdom Exchequer Loans; $lmn.

from the loan from the International Bank for the Credit Corporation; and $2.5mn.
from contractor-fi.11ance for the Parika-Bartica road - a total of $20mn.

With a budget deficit of $7.lmn., we cannot count on any revenue cpn­ tribution to the Development Fund.

To meet all the requests of Min­ istries .would therefore require an additional $21mn., for which there are no funds in sight.

530 Provision :f'or an expenditure of' $31..6mn.

has been included in the Draft Estimates.

This is a feasible level of expenditure and includes continuing commi t.nents of some $15mn..
However, inability to finance expenditm·e of this size will n ecessitate reserving $JJ..6mn.

o-£ expenditure.

54.

Of the $3lo6mn.

expenditure for which provision is incJ.uded in the Draft Estimates, �t8mn.

is for drainage and irrigation works (abou t half for Tapakuma); $5o3mn.

for roads ( the bulk for Parika­ Bartica); $3mn.

for transport and harbour services (including $1.0mn.

for the third ferry ship) ; $2mno for industry and credit ( through the Credit Corporation); $1.3mn.
for sea defences; $lo8mn.

for electri­ city :development (including $Oo4mn• for electrification of' the Esse­ quibo Coast in the vicinity of' Anna Regina); $1.9mn.

for housing; $1.7mn.

for schools, etc.

; $1.7mno f'or agriculture and geological surveys; $1mn.

f'or land developmen t. 550 There is a gap between the cost of the original programme and the foreseeable sources of finance of' the order of $18mn.
Moreover, because of increased costs of labour and materials, the cost of the 0 original programme has been infl.ated by some $25mn.

In order, there­ f'ore, to complete the or�inal programme as p1.anned, which the Government considers inadequate for the needs of' the country, addi- tional finance to the tune of some $4-3mn .. has to be found.

The u.rgenc--.1 of finding new s::mrces of' capital for development forms part of the background to the p roposals in this budget speech •.

18 TAX PROPOSALS 56.


Your Honour, the new taxes will have substantial long-term effects on revenue, but their immediate effect may be small, and cannot be estimated reliably.

In the current :financial year, their yield may be of the order of' $1.0mn.

(largely :from the net property tax).

But we have immediate problems to f'ace: (1) the economic position country; and (2) the financial position of.'

the of' the Government.

57.With regard to the f'irst, there was a capital outflow in 1961.
Indeed, there ls evidence that it started earlier - perhaps as earzy as 1953.

I do not propose to deal here with this capital flight except to say that there w.s absolutely no justif'ication for it.
The small financial and speculative class and their allies, which up to 1.953 controlled the destiny of' this country (with a break of' some f'our months in that year), and again during the period of' puppet rule that ended in 1957, used their propaganda media (press, radio, etc�) to generate fear for this utterly disloyal in the hope of' regain­ purpose, 0 I., ing political power even at the cost of economic ruin.
aelI"'-seeking and greedy clique is caused the depletion of' our international banks to follow a restrictive credit policy; but we have now taken still active.

Their exertions reserves and forced the This cynical, have finn action to :frustrate their evil intentions.

58.

The extension of :Exchange Control to cover sterling area countries has been f.'orced on the Government because of this outward movement of capital.

Our international have fallen by s ome #15mn.

in the last two years.


This f'orm of control is not unique to British Guiana; nor is it the prelude to anything sinister, reserves as enemies of the Government would have the people believe.

Indeed, such controls exist in countries of.'

the Western Hemisphere, as well as in Australia, New Zealand, India, Ceylon and Ghana.

Only last week the British Colonial Secretary, while in Trinidad, was reported to have supported the Government's exchange-control policy.
Mr. Regmald Maud.ling said: ''Exchange controls are disliked by investors.

But t..1-iey are necessary things.

Every counJ�ry must have the right to control its financer.

·oy laws if' necessary."

0 59.

Because of the precarious state of our international re­ serves, it is necessary to impose restraints on the e:iqiendi ture of 19. f'oreign exchangeo To supplement the exchange restrictions on outward .. capit.,al movements, control.
In the particular circw�stances, two courses are open: import restricti the latter is the more ef­ ons ancl tariff' fective instrument because it meets both balance-o.f-payments and finan­ cial considerations.

.An increase in import duties will not only re­ strain imports but also benefit the revenue.

60.I should like to explain, Your H�nour, that the country 1 s balance of international favourable, since the in.flow of' foreign co.pital payments cannot in itself be regarded.
has so far exceeded as un­ the deficit on current account by a few million dollars in recent years, and promises to do so in the year just ended.

But British Guiana is so highly dependent on a few staple exports, exposed to the vagaries of the world market, that it is highly desirable to generate a surplus for the sake of building up reserves, even at the cost of current consump­ tion.

qle In decid:mg on the new taxes to be imposed, I have had a number of considerations in mind.
First of all, we must do all we can to avoid any deterioration in the balance-of-payme nts situation by f taking stern measures to import less of the luxury cons1.llller goods with­ out disturbing imports of essential consumer goods.

Some of' the taxes have been imposed on non-essentia.l goods with this aim in view.

62.

There are other cJasses 0£ goods which are produced here and.
which need not be importedo The effective implementation of import substit ution, which is essential of a policy of a in the circumstances developing econoizy, is best achieved by tariff control.

Those who have developed.

a preference or taste for imported goods in spite of the existence of local substitutes, will still but they will have to -pay f'or the "pleasure" to be derived from such be able to use the former; ,l consumption.

63.With a deficit on the Recurrent Budget of $7.lron.
and the inadequacy of' f\mds to finance 1962 development e:xpendi ture, the items upon which increased duties will be levied have been cho.sen after m ost careful consideration as to the fairest and mo st practicable means of' raising the additional revenue.

Should aey Honourable Member of the Opposition object to any particular item, I would remind him that all " taxation is unpopular and that Governments will always be obliged to as they have to spend.
But this Government, unlike others tax so long of the colonial age, will, as I have said before, also use the tax tool as an instrument for the redistribution of wealth and income to­ wards greater equality and for the promotion of a higher level of economic activity.

I hope, therefore, that those who ma.y be moved to ; 20. criticize thP.

propo::;als will put :for.vard constructive alternatives to yield an equivalent amunt of revenue to enable the Government to dis­ charge its duties to the people.

64-.
64-.

Erl.sting import duties yield $22mn.

annual:!¥, which is J1i% of' the total value of' imports and 18% of the value of' dutiable imports.

It i!!

proposed the rates of duty to yield $6.5mn.

to increase on the present level of' imports.

This increase will be concentrated on $40mn.1 of imports, which at present yield $12mn.

in duty and comprise less­ essential goods either in the sense that they are not necessaries of life (e.g.
alcoholic drinks, tea, motor spirit, per:t\nnery, cosmetics, the more expensive dr:ink.s, tobacco, concentrates :for non-e.lcoholic dress fabrics, :footwear and other apparel, glasaware and chinaware, jewellery, radios, ref'rigera.

tors and other bous�hold electrical· ap­ pliances and motor ca.rs) or in t.b.e sense that adequate substitutes oan be supplied from local production (e.g.
meat, fish, butter, milk, cheese, fruit, fruit juices, jams., coffee, conf'ectionrry, prepared paints, toilet soap, pap er bags and some varieties of' clothing).

The increased rate of' duty on milk vri.ll not apply to condensed milk or to milk-based · in.fant foods; and local pa:steurised milk will be reduced in price by 2¢ a pint.
While therefore the cost of hard drinks will rise, the Government will, in compenaation, lower the cost of :.fresh milk, which I am sure Honourable Members will agree i8 a more nutri­ tious substitute doubts they may have about its capacity to whatever pl.ease certain palates.

The import duty on outboard motors(� and 10}& yielding $10,-000 per ammm) ldll "be removed.
The actual yield' of these proposals zrlnce there will be some curtailment in the volume of such imports will be less than the $6.5lllllo mentioned above, benef'i ting both local production and the country's ·international bal­ ance of payments; but the revenue yi eld .should not be less than #5.5mn.

The increased duties will add J..7% to the c.i.f.

value of these imports and bring the go9,ds to nearly �.

The � retail pr.i.ce should not rise by average ad ftl.erem rate of duty on these more than l{fo.
However, ma:qy o:f the items do not enter into the world.ng-class budget, and therefore the increase in the Urban Consumer Price Index (which is an index o-r changes in the working-class cost­ of'-living) will be appre:x:imatel,y ]%.

.,.

r to yield 65.A modest export duty wilJ.

be levied on G-reenheart $1251000 on the present level 0f' exports.

'l'he duty is equivalent about 4r� of the f .o.b.

value of the G-re.enheart.


T'm yield revenue will be less than the increment in duty since the duty is a to the to deductible expense for income-tax purposes.

However, for the purpos� 21 of' estirnat:ing the increased yield of export duty per � the revenue effect may be put at $0.J.mn.

66., There will be a complementary increase in excise duties on rum and other spirits and on beer to yield $3mn.

at the present level of consumption.


The increase in d uty on rum (f'rom $9.,60 to $14.,4.0 a proof' gallon) will adjl about 50¢ to the retail price of a bottle, an increase of about 2.:J;&; and the increase on beer (from 75¢ to $1.40 a liquid gallon) will add about 4-¢ to the retail price of a bottle, an increase of about 15}1a.

There will be some curtailment of corurumption -· which is social],y desirable - but the actual yield should not be less than $2.,5mn.

67.
The following licence duties will be increased: Motor Vehicle Drivers - f'rom $1 to $3, which f'or 251000 drivers should yield .. an addi ti.onal .�o,ooo in revenue; Moneylenders - f'rom $150 to �t250; Pawnbrokers - f'rom $l,.80 to $750 in Georgetown, $120 to $500 jJ, Ns1·1 Amstercla.m, and $60 to $200 elsP.where; Bondea vrarehouscs - f':rorn �pl�(' to $200; Liquor Licences - f'rom $480 to $600 for spirit shops in Georgetown and f'rom $1.50 to $200 in other anie:,, from $1..80 to $600 for t urban restaurants (rural restaurants to remain at $1f-80), and for hot.els :from $550, $480, �tl70 and $120 f'or .first-class and second-class in Georgetown and fbr f'irst-c1ass in New Amsterdam and other, respective­ ly, to $700, $600, $200 and $150.
Thia entire section should yield increased revenue of' some $1002000 per annum.

680 Auction dues (at present 2% by buyer and J% by seller) will be increased to 3f{, and 2% respectively.

69" Stamp duties will be increased as f'ollows: on affidavits, etco - :from 36¢ to 50¢; on agreements --:from 24¢ to $1.00; on receipts - 5¢ f'rom $10 to less than $250, 25¢ from ��250 to less than $1,000, and $1.00 on $1,000 and over.

The increased revenue might be j50·,ooo per annumo 70.
The increases in import duties, excise d uties., licence duties, etc., discussed above will h elp to s olve the second problem we have to f'ace - the tight f'inancial situation of' the Government.

But they will provide on]y $8.25mn.

towards a prospective deficit of' 0 #7.lmn.

on the Recurrent Bud.get and a shortf'all ment expenditure of $ll.6mn0 - suf'f'icient to cover the first and to of' f'inance f'or develop­ contribute #l.15mn .. towards the second.
This is still far short o-f' the requirements of' the Development Budget and below even the modest a.n:­ nua.l target contribution ($3mn.)

to the Development Fund.

tty further tax proposals include adjustments to the incoi:;ie ta.-s:: levy and.

the in- 22 troduotion of the capital gains, the mt proper-w and the gift taxes, to which I referred earlier in my speech.
71.It is proposed to reduce the personal and wife allowances from $900 to $750 and f'rom $700 to $600 respectively; flat allowance for eaoh child of' $300 (in place of the present 3-tier to provide a. system, $250/350/500, according to age); and to limi·t; to f'our, the number of allowance!

for dependent relatives and c hildren, other than minor children, of the taxpayer.

72.
72.

These allowances are high in relation to our economic cir­ oumstances with the result that onJ.y a minority are liable to income tax.

Although in a democracy, it is desirable that as many people as possible should share the common burden of' d:irect taxation, I wish· to make it quite clear, Your Honour, that the burden to be placed on those previously exempt is only a very modest one.
The concept of equity which I have kept in mind is that taxes should be levied on people in accordance with their ability to pay.

The effect of the proposals in increasing tax liability will be progressively greater the higher the :income of the taxpayer.

73.

It is also proposed to split the present 12% a.nd 2Jffe rate­ bands ($2,400 each) into four #1,200 bands with rates of 12, 18, 24- and 30 per cent.
This s11Pothing out o-J: the r ate schedule was recom­ mended some years ago :in the Nicholas Report •.

The ceiling rate will remain at 6�o 74.These changes will :yield about $lmn., an increase of 30% on the present yield of $3.5mn.

I should add that a married man re­ oeivmg the minimum wage of $3.04 a day will not have to pay income tax.

Indeed, even if he had no children or l if'e insurance, have to earn regularly more than $5 a day to pay arw tax.

he would 75.
he would 75.

The Government had previous:cy •agreed to the introduction of the Pay-As-You-Earn system of.'

tax collection, whic h will apply to persons in receipt of.'

wages, salaries and pensions.

This will be in­ troduced with eff.

'ect from ls.t January, 1963.

Under the Pay-As-You­ Ea.rn system the employer withholds ta:x: at the time of.'

making payment o-J: -wages, salary, pension, etc., and pays it over to the Commissioner of.'

Inland Reva1 ue from time to time, as prescribed.


Failure of an employer to deduct or to remi.

t ta.x to the Commissioner will be an offence.

Tax withheld but not yet paid over will be held in trust by the employer and will not be subject to attachment in respect of debt, liability or bankruptcy of the w ithholder.

The employer will be required to supply the 12rson from whose emoluments tax is withheld 23 with a statement in this regard and to furnish to the Commissioner prescribed returns.

76.
76.

Because of the increase in interest rates, li.fe Insurance Companies have been able to invest premium income on very favourable terms in recent years.

The Government feels, in the circumstances, is no that income tax at the very low r ate of 15}b on these companies longer justified and proposes, therefore, to raise it to 30fo.
no The Gov0rnment proposes to take administrative action under the Exchange Control Ordi'Ylance to preven t the issue 1f bearer bonds in :in the future and to ensure that interest on past issues cannot evade tax.

78.

It is proposed to raise, where necessary, the rates of interest on loans and advances to bring them in line with the rates at which the Government can borrow.

79.
79.

The annual yield from the measures to be ta.ken in regard to Life Insurance Companies and bearer bonds should be something like $1501000 .

A token amount of $1001000 can be added for the immediate revenue yield of the amendments to the Income Tax Ordinance and the Income Tax (In Aid of' Industry) Ordinance, which I discussed in the section of rr;y speech dealing with Existing Taxes and Their Reform.

In the long run these amendnrnnts should yield substantial revenue, but it is impossible future.
to predict its order of magnitude in the immediate 80o With regard to the nevi capital taxes, I now wish to explain that the capital gains tax is mere]y an extension of income tax to capital profits - by redefining taxable income to inc Jude capital profits from the disposal (whether for valuable consideration or not) of' real property and valuable rights to property; of shares, debentures and other rights to money; of furniture, jewellery a.nd other high-value personal property; of' businesses as goine concerns; and of the fixed assets of businesses.
81.

The capital gain will be defined as the excess of the value of the property at the time of disposal over its value at the time of' acquisition, or at January 1, 1956, whichever is the later date - Q sales for full consideration providing c onclusive evidence of this or, in their.absence, valuation at market prices (e.g.

for estate or gi.

:ft-tax purposes).


Gain.s from the sale of f'umiture etc., of which the value on sale is less t..ha.n $5,000 will be exempt; M w:i.11 be also the gains from the sale of owner-occupied houses, the proceeds 2/i- of which are in €�eater part re-invested in another principal residence within twelve months.
Capital gains will be taxed at o rdinary income­ ta.x rates, but the highest rate of' tax will be 4% (not 50% and (Jy/o as for other income); and, if the property was held for more than three years, may be spread for tax purposes over the period of ownership but not exceeding five years prior to disposaL Capital losses may be off'set against capital profits (present or future) but not against revenue profits or other income, except that on death such losses may be off'set backward.a against capital ga:ins o r other taxed ::.ncome up to five years prior to death.
820 The annual property tax is one on n et worth - the value of' the assets of an :in.di vi.dual l ess his lie.bill ties.

'lhe assets for the purposes of the tax will be def'ined to include the same classes o-r property as will be subject to the cap.ital gains tax plus cash and bank deposits (which, though not mentioned in c onnection with the capital gains tax, since 0£ their nature they cannot give rise to capi­ tal gains, are of' course assets).

Liabilities will include all debts.


The basis of' valuation of the assets will be their � value, that is, the cost of acquisition of each asset plus any subsequen t capital expenditure on its improvement.
The mit:l.Al balance sheet of assets and liabilities will be set up as 0£ January 1, 1956 ( to mesh with the capital ga:ins base date), a.ey ass.eta acquired prior to that date being valued on the owner's declaration at the current market value at that date, and any assets acquired or improvements to assets effected after that date being valued at actual cost.

The valuation of lio.- bilities will not ordinarily present any dif':f'icuJ.ty since they are usually :fixed in money terms.
The tax will be levied on the excess 0£.

aaseta o ver liabilities c urrent at the time of' the levy.

The initial valuation (of' assets and improvements prior to January 1, 1956) will rest on the owner's declaration, it being understood that the same valuation will be used for the capital gains tax (so that under­ dec�tions will gain the owner nothing) o 83.
The :following rate schedule is proposed: •• nil on £irst # 50,000 of' property on next $150,000 of property o• � per annum on next $300,000 of' property •• ¾}& per annum on next $5000000 of property •• J% per annum.

••* per annum.

on the remainder and 0 Companies will be taxed at the flat rate of � of' their net assets (written down, but exclud:ing initial allowances).

.

...... �-----·--·· ·-·------··-- ------------------.

.
.

25 84-o The rate schedule proposed will, I am sure, be generally agreed to be a modest one.

Some may say, however, in spite of the :fact that the weight of the proposed tax is not heavy, that it is being introduced with some sinister motive, as a political exploitation or "expropriat ion" of property.

I wish to give this for­ instrument for the mal assurance: the Government categorically denies any intention to penalize the owners of' property.
This measure is principally aimed a.t closing existmg gaps so as to provide a· comprehensive and effective system of taxation, which more and more progressive governments are adopting.

Mr. Kaldor, the Governroent1s Fiscal Adviser, that the schedule of rates for the net property tax be not increased, recommended and I am glad to give this Government's undertaking that the rates will remain as now proposed.

85.
85.

The gift tax, as mdicated earlier, is a necessary complement to an inheritance tax, that is, a tax on either the estate of a de­ ceased person (estate duty) or on the heir or legatee (succession duty).

It is essential that the gift tax, if it is effectively to prevent avoidance of' the in..1:rnri ta.nee tax, should have the same character as the latter: if' the inheritance tax is levied on the donor (ioe., the deceased or, more similarly levied.
(Ori grounds of equity, a tax levied on the donee correct]y, his estate), the gif't tax should be is more just in principle than one levied on the donor, since the for­ mer tax relates to benefits received).

Because of the existence of the estate-dut y type of inheritance tax in this country, I propose that the new gift tax should be Jevied on the donor as is the case in the United States, Australia, and a number of other countries.
86.In America, the gift tax was supposed to check avoidance of the estate ta.�, but the effect has been to encourage taxpayers to combine the two taxes in such a way, because of di.i'ferent rate sche­ it dules, as to reduce sharpzy the total taxes paid on transfer of pro­ perty by gift.

There will be no such loophole in our legislation.

Although liability f'or the gif't tax will be on the donor, there will be a provision to make the donee liable if' it is not possible to col­ lect from the former.
Without this protision, there is a potential loophole f'or an individual to avoid the gif't tax by ''giving away" his whol.e property and becoming "bankrupt".

0 those of' the existing Estate Duty - the taxpeyer's position being the 870 The tax on gif'ts will be such that the r ates mesh with same whether he makes � � transfers or bequests on death.

The tax is intended to appzy to capital gif'ts, but it is impracticable to separate these :from income gifts.
It is proposed, therefore, to meet this by providing an exemption limit ($2,000 per annum) which is all that is practicable.

26 88.It is di:f:ficu1t to say what all the new capital truces will yield, but it should not be less than flmn.

890 In brief' the tax proposals I have just discussed should yield.

some $1015mn1 in additional revenue tltis year and convert on the Recurrent Budget as presented to a surplus of' $3.4mn.
- very the deficit little more than su:f'f'ic:Lent to provide our target contribution to the Development Fund.

-- · · -- --· - - - -- - 27 DEVELOPM£NT OUT OF Jl'JTERNAL RCSGTm.CES 90.

Your Honour, I come now to the important mc1.tter of promoting development by our own efforts, out of internal resources.
One of the basic aims of budgetary policy is to stimulate economic development by making that scarce factor of production - money --available, so that unemployment might be reduced and ultimately b,mished.

In order to ' I increase the flow of resources .for developmental purposes, it is proposed l to introduce a scheme of compulsory savings such as already e:cists in some Latin American countries (e.g.

Brazil) and :-rhich has recently been intro­ duced in Ghana.
Even without the destimufoting effect on the economy caused by the capital flight, a sa1ri.11gs scherne such as the one to be out­ lined is highly desirPble.

� 91.

Similg.r to the Ghana scheme, the one I propose will be adminis­ tered in close relationship with the administration of income tax.
Contri­ butions will be deducted weekly or m�nthly (as the case may be) from the wages and salary of employees along with the Pay-As-You-Earn deductions; and from all others (the self-employed, business partnerships and com­ panies), they vill be assessed and collected in the same manner as income tax.

92.

The rate of contribution will be 5% of wage and salary income and lo% of other income --the income of the self-employed in excess of $5,000 to be regn.rded as falling in the higher rate cotegory.
Income under $1,200 will be exempt.

There will be no exempt income for companies and the like which will make a contribution of 10,% flat on all profits.

93.

Contributors will be given Goverrm1ent bonds of the registered, non-transferable variety, repayable at the end of seven years with interest ( tax-free) at 3.

75%, any bonds not encashed 2..t me.turi ty continuing tc earn interest at the higher rate of 4ib per annum, compounded annually.
The bonds can be encashed before maturi t;T on retirement after 60 yearn of age (payable in five instalments), emigration or death.

94.

It is also proposed to incorporate certain lottery fer:.tures in the scheme which ought to make it more attractive to the majority, who would then have the chance of winning 18rge cash prizes even before the bonds are due for repayment.
Each contributor will therefore be offered the choice between a straight interest-bearing bond or a co;nbined interest­ and-lottery bond, except that companies anrl business partnerships will be the former only.

Lottery bonds will earn interest at a lower r.J.te offered of 2% and will participate .

of such bonds outstanding in drawings in which Z/o of tbe total face-value is gi ve!1 away each year, in addition to the redemption of the bonds drawn.

28 95.
28 95.

Additionally, bonds) of one-third lottery it is proposed to allow withdrawal (except for of any contribution at the en� of three years, in which case interest at the will be at the rate of 3%, and the remainder end of four years thereafter, interest on this part being 3.5%.

96.

A scheme along these lines should provide considerable internal resources for development, something of the order of $6 million annually .
I wish to point out, however, that the scheme outlined must not be consi­ dered in the same way as taxation, since the amounts taken are fully repay­ _able with accrued interest-The contributor will benefit doubly - by saving for his own and his family's future and by helping to make a future for himself and his family by the country's developnent.

97.
97.

In announcing that it is proposed to introduce the compulsory savings scheme by July 1, 1962, I would like to sny that it is a �;imple alternative to a universal contributory pension scheme, and that the Govern­ ment might transform it into a more elaborate pension scheme at a later_ date.

98..
98..

If this scheme is introduced we can therefore count on an addi­ tional $3 million from this source for financing development expenditure, which with the $3.4 million surplus on the Recurrent Budget will bring the additional funds for development to $6.4 million - sufficient to compJ.ete the finance for expenditure of $26.4 million.

CENTRAL BANK 99.
CENTRAL BANK 99.

If the community is to make the best use of its real resources in the public interest, it is necessary that it should have a sound mone­ tary and banking system which can be controlled so as to complement and facilitate its development policy.
It is therefore proposed to set up a central bank, which will issue the national currency, regulate the flow of money and credit so as to assure a balanced growth of the economy, ad­ minister the public debt and exercise other functions normally undertaken by central banks in other countries.

The central bank's operations can also contribute to the appropriate distribution of investment in the· economy.

29 EXCHANGE CONTROL AND RELATED MA'l1I'ERS 100.


Since the control of outward capital movements was an urgent necessity, it was not possible initially to work ou.t a aystem of controls designed to achieve the particular ob,jective and adapted to the particular circumstances of our international transactions with the sterling �rea.

We simply had to extend the existing controls relating to the non-sterling world to the ·sterling area.
However, the original controls did not have quite the same objective, nor did they involve the same difficulties since traffic with the non-sterling world was smaller, impor­ and what was more tant, our international payments and.monetary systems were not tied in any .. way to the non-sterling world.
But our monetary system is shared with the eastern group of the British Caribbean territories, our international payments are effected through the intermediary of sterling, our h<mkinB" towards systeM is ,-,r:i.ented the sterling area, and the larger pa.rt of our imports come from the sterling area.
It has heen necessary, therefore, to adjust the controls to achievP their particular objective more.efficiently and conveniently, and to clarify and simplify them so that non-resident.a who lend to or invest in this country may be assured that the controls will be applied in a clear, predictable and uniform manner on which they can rely, and that residents should not be unduly hampered by restrictions on their international transactions.

101.
101.

I propose to issue for the guidance of the public a state�r.nt fully setting out the manner in which the controls will operate.

J.!ean­ while, I take this opportunity of referring very briefly to some of the more important ones.

102.

Imports will be allowed to continue free of restrictions, but foreign exchange for payment of goods will have to be meshed closely with actual i:mports to ensure that they are not used as a cloak for capjtal exP9rts.
The banks already allow payments on certain have authority, by delegation since 1959, to conditions.

Import trade will �ot be hampered by restrictions; and form-:-filling will only be required for transactions over the value of $10,000.

103.
103.

Exports of goods (up to $10,000 in value) in the ordinary course of business will be si:milarly free of restrictions subject to c0ntrol through the banks and the Customs and Excise Department to ensure that the foreign currency proceeds of the exports accrue to the country.

1C4.
1C4.

Remittances for education at schools will continue to be per- mitted up to $3,360 and at universities or comparable institutions up to --------------:-:--_____ __: :__ ____ ···--· -.. 30 $4,800 per child per year, provided that evidence is produced from the institution that the piyment is boM fide.

, 105.With regard to gifts and grants, the banks are allowed to approve remittances up to a limit of $50 per person :for the former.

Up to $4,800p.a.
Up to $4,800p.a.

will b� allowed on application to the Exchange Control for the support of satisfactory dependent relatives pro,ided evidence is produced of the bona fi.rlea of the payment.

106.

Pensions pay-able to non-residents will be freely permitted on satisfactory proof that they are reascna.ble and arise from a contract of employment.

ID7.

The usual :policy of allmr.ing the remittances of profits, divi- dends, interest, etc.
accruing to non-residents from investment in this 'tltJWttt::a w:i1.l be eontinned L.ri th the :approval oi' the Exchange Control.

�triation of capita.I and capital :increments rill be permitted freely by the Ere� .Contm.l in aceoxd:ance \ri..th the usiml practice in applying mcllange controls.

New investments Q.Y" non-residents require Excha.rrge .

Ccm:tr.ol iq,p.mva.l .fur this � 1C8.

loans and direct investments by residents in foreign countries -will nat ordinaril.v be pemitted.

Indeed.
Indeed.

these fall in the category of capital outflow items1 which have adversely affected our balance of pay­ mentso ,.

II 0 109.

With regard to imrestment abroad of the funds of finanr.e insti- tutions (other than bar.ks), life insurance companies, both local and foreign, will be required to invest 7'5/., o-r their resources locally.

This rill apply to new resources, but the companies will be required period of' ten years to bring their local in:vestments up to 75% of their total resources...
This same policy will also apply to the Building Society.

over a In om.er to faeilitate these·requ:i.remcmts, the Gove:rnmerlt will offer to i.B61le 'BeCUrities w.ith a ,:-ange of' maturities to suit the fir:ancial needs of these companies.

UO.

.

flus is yet another means ,.

in &iditi.on to the compulsory savings scheme, capital taxation,.

and increa...."8d.

taxes.

of mobilizing enough internal :resow:ces.. far developnent and the futv:re economic security of the n:stian.
ill.. Yi-th regard to foreign assets, eve-ry resident person will be x,eqttll'9i to declare immediately· all foreign assets (e.g.

securities, property and bank accounts).

All securities and c ertif:i.<'.at.es of' title 3l will then have to be registered in the Exchanee Control and placed in \ the hands of "authorised depositaries" their _disposal requiring the accounts express permission of the Minister of Finance.
Foreign bank will be allowed onJy where required to facilitate normal commercial transactionso CONCLUSION 112.

Honourable Members will sureJ.

;y-appreciate by now - af'ter the of' the case and the proposals presentation is precise]y because of' underdevelopment penditure (which implies increased taxation) is required to for +ax rei'orm -that it lay the that increased Government ex­ i'oundation f'or rapid economic growth.

There is no doubt that we have been held back in the past.
Perhaps the political and editorial ser­ vants of' "enlightened" f'oreign capital did not and "people's" capitalism will explain why flow into Guiana before; and why, because it does not now flow, they are attempting to shift the blame.

113.The budget this year.

is a reflection of our determination to continue the Development Programme.

The sacrif'ices made toda.y will bear i'rui t tomorrow, but only ii' we have a vigorous and confident ap­ proach to our admi.l'listrative and f'inancial affairs.
I should like to add that the Government is detennined that the increased revenue raised.

by the t axation proposals shall be devoted to the maximum extent pos­ sible to the Development recuITent services shall be ma:intained with the maximum econollzy' of' ex"· Programme and that with this end in view the pencliture.

Inefficiency, waste and extravagance must be eliminated..

The proper saf'eguard money provided by the people must be.

wise]y spent.

of public funds is absolute]y essential.

The 114.


The machinery for the control of' public expendi illre has been reorganised and will be perfected public f'unds.. With the help of United Nations technical assistance is no w-a.ste of' an to ensure that there Organisation and Methods Sect;i.on of the Ministry of Finance has been set up and provision made f'or i ta adequate staf'fing.

A Training sec­ public ser­ tion has also been established and sta.
:f:f'ed to ensure that vants are adequate]y trained to make the most efficient use of their e:ff'ort.

These are necessary adjuncts to the effective control and economy of expenditure by the Mini stry of: Finance.

What are vitally needed are thoroughness, sound organisation and discipline in all ranks of.'

the Public Service.

ll5.

The staffs of.'

the Audit Department and the Accountant G-eneral' s Department have been expanded.
Under the new Financial :i2 • Admini stration and Audit Ordinance, with its supplemE,ntary rer,ulations and instructions, responsibility of the for the efficient organisation departments under the Ministry !�alls direot].y on the Permanent Sec..e­ tary, who will not only be responsibl e to his Minister and the Govern­ ment for the efficiency oi' the services under the Ministry• s control, but will a.lso be personally answerable to the Legislature through the ' Publio Accounts Committee for the economical expenditure of public f'unds for the purposes i'or which they were provided and generally in accordance with the injunctions of the Legislature.
116.Of course, organisation, training and regulations are of little avail without willing and loyal service from public servants: the ef':ficiency oi' the public services depend ultimate]y on the willing­ ness of each and every public servant to put forward his best efforts for the good of his country.

The Government will be vigilant in all these matters, and the willing co-operation of the public service will enable us to set an example of which all �uianese can be proud.

117.

At this point I should.


like to say how much I appreciate the assistance I have received in the preparation of the Budget f'rom the members of wy staff' and of the departments concerned.

The groundwork .for establishing what is a new era in f inancial, fiscal and economic administration in this country he,s inevitably thrown an enormous bur­ den of work on them..

I am glad to say that they haye given unstinting­ ly the extra time and effort without which the proposa.
?-s I have dis­ cussed in this speech could not have been f ormulated and presented in the short time available .

1180 I trust also that now Honourable Members o.f this House can appreciate the amo•int of work this Ministry has had to undertake as the result of' the constitutional change in the short time since the Government took office, they will excuse the late presentation of·the Budget.

D.9.
D.9.

Now that we are about to b e completely f'ree, and therefore :µi a po�ition to plan and provide .for a secure future, we cannot expect to get the great advantages that will flow i'rom independence without assuming the burdez1s inevi tab]zy' associated w-i th them.

120.

The taxation proposals are meant to make all Guianese con­ tribute in as equitable a manner as possible to the build:ing of a stable and just society.
Thia budget is one that deliberately breaks and also in keep­ with tl'aditiDn, for reasons which are quite ing with the policy of a people1 s Govermuent elected to dismantle obvious; privilege, and exploitation, and lift up those living at or below the f r threshold of poverty.

There should be no place :in a ,�ommunity Like oure f.'or those who cannot or will not meet - on the plan�' of rc,:i,�on - thP.

social and economic problems i'aci.


'lg our country toc1.1.y, or who are determined, in spite of the lessons of current history, to preserve a decadent so cl.al order based on scnrci ty and greed.

121.
121.

If foreign aid is to make aey appreciable impact on our low living standards and growing unemployment, it muRt be devoid of poli­ tical "strings" and f'ree f'rom demanas for our adherence to military ► � I blocs and pacts., There must also be no external i.nf'luence on t,h e character of our d evelopment program.me.

122.

We have abundant internal resources in the form of unemployed la.hour and idle lam.

·But too much of the sav:ings of the wealthier olasses is channelled.
into.real estate, commerce� moneylending and speculation - savings that could be more effectively devoted to the utilisation of the countxy • 3 idle resources for industry.

In addition, some have invested abroad, either through 'ignorance or by design, the wealth derived :from this countryo The proposals made are aimed at mobilizing all internal resources for investment in productive enter­ prise.
123.The Government intends to do more than merely provide the in:f'rastructure f'or economic development pub­ e Ther.e will be incr8asing lic participation in the f'icld of' production o The Goven1l'!lent is deter­ mined to accelerate bright economic future f'or all, in contrast the economic development in order to ensure a to the insecurity o.nd v1a.n-t of' the majority which is normal in an unplanned and unregulated econorzy.
All of' which means that there will be a continued growth of the public sector with enough room lef't, however, for private enterprise.

124,.

The fiscal reforms proposed to check income inequali t,y centre around wealth control, and rely heavily upon inheritance, tal gains and net property taxationo L,creased governmental gift, capi­ outJays will operate to redistribute income towards greater equality.
Expendi­ ture on health, education, old age pensions, subsidies, and the lik.b will not only operate to reduce inequality of advantages by tne provi­ sion of these services free or at subsidised within the means of' all, but in the long run ensure that no one is rates so as to bring them denied the opportunity to develop his capabilities for his o,vn benefit and the benefit of' his cotmtryo The money-raising and money-spending activities of' this Government, theref'ore, are directed not only toward stimulating and promoting economio development, but also toward maxi­ mizing social welf'a.re and effecting a net distribution of purchasing power in favour of the ,rorking class.
34- 125,.

I should like� Your Honour, bef'ore concluding, to express the Government's appreciation of the services rendered by Mr. Kaldor.

He .

.

.

• 11 -� 1 has a.lso adviseq.

the governments of India, Ceylon, G-hana.

a.nd Mexico on reformation of their fiscal systems.

Measures similar to those pro­ posed for our cotmtry have already been adopted in these territories, with the which are today politically free but are still grappling remnants of colonialism and the problems of economi.o imperialism.
I:f we are to break out of the vicious circle o-f' poverty and backwardness which has so :far circwnsoribed our development, the Guianese people must.begin to think and act as free men and women, fired with the determination to overcome obstacles strewn in the path of progress.

1260 It is indeed appropriate Mr. Speaker and Honourable Members, to recall these word.a taken f'rom a summary.
of' the speech of' Dr. Kwame Nkrumah, President of Ghana, when he a<ldresaed the National Assembly on the eve of the Budget, on July 4, 1961: "The peoples of Af'rioa had learnt to their cost that was not just a matter of political con- independence stitutions or "Ohanging of flags; there were subtle and aurrepti tious ways by which the colonial Powers could maintain their grip on the· subjected·peoples ,. '

even after the visible trappings of foreign · sovereignty had disappeared._" 127.
It is well that the Guianese people take heed of' this warn­ ing as we take the :f'inal step to complete freedom for there are maey who a.re seeking to deey us, a little longer, the fruits of' independence for which my Party .has struggled so long and so hard.

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