Cook Islands Government, Opposition In Agreement Over Tax Amnesty

Proposal would eliminate penalties, establish 2-year repayment plan for taxes owed

By Florence Syme-Buchanan

RAROTONGA, Cook Islands (Cook Islands News, Jan. 9, 2016) – The Parliamentary opposition supports the government’s proposed tax amnesty, saying that while the opposition’s role is to hold government accountable, there are occasions when it agrees with the government.

Opposition Finance spokesman James Beer says this usually occurs when a solution proposed by government has wide support and has been coherently put together, or mirrors an opposition policy. And that’s the case with the amnesty, which prime minister Henry Puna announced just before Christmas.

“Then it’s quite natural for the opposition to agree,” Beer says.

Confusing the amnesty issue somewhat at present is the fact that Revenue Management and the Office of the Prime Minister have yet to explain the policy that would drive the promised tax amnesty and clarify whether the prime minister actually has the authority to make such a wide-sweeping declaration without parliament’s endorsement.

Sources have told CI News that the concept first floated in cabinet three months ago, but was not supported by Revenue Management.

Claims have been made that the amnesty has been pushed through without proper consultation with the relevant government agencies as at least two cabinet ministers are in serious trouble with their tax debts.

Beer says the Demo Party’s amnesty policy was mainly driven by the need for economic stimulus. The Democrats included the condition of an amnesty on penalties with a maximum two-year repayment period of the principal, while maintaining current taxes.

When talking with people we got to appreciate just how much penalties and interest on tax were a barrier for Cook Islanders to live fuller lives and how much of a burden it was to carry.

“It looked very much like bad debt - which can be written off in the private sector, whereas taxes and penalties generally are not.

This debt was likely to follow tax payers around for the rest of their lives, continually accumulating with no real means or incentive to repay.”

 “EVEN THE government agency tasked with collecting taxes would find that it consumed resources that was probably best spent elsewhere.”

Beer says when devising their amnesty policy, the Democratic Party discovered that many business owners and individuals owed more on penalties and interest than they did on the principal tax.

“Some examples had penalties as high as two and a half times greater than the principal sum itself.”

PM Puna and Beer agree on one anticipated outcome of a tax amnesty - it could create incentives to boost the country’s economy.

“Cleaning the slate could be an important part of creating incentives for local businesses and individual taxpayers to start again and in doing so, incentivise tax payers to repay delinquent taxes and stimulate the country’s economy,” says Beer.

“This would be a 'win win' opportunity. The treasury would get an injection of tax payments that may never have been paid and taxpayers would get some much-needed reprieve and be able to start anew.” It’s not the first time a tax amnesty has been introduced in the Cook Islands.

In 1998 the then Finance minister the late Papamama Pokino announced a tax amnesty that came as surprise for the public as well as some government officials.

Announced in July 1998, the amnesty did not make a huge difference to 1998-1999 budget plans.

It’s understood that the public was given a month to provide Revenue Management with declarations. Most declarations involved non-filing of returns and undeclared income.

Six years ago it was estimated that about $21 million existed in unpaid taxes and penalties in the Cook Islands.

That figure has since increased by millions more (a 2013 government review of the tax system put the total of unpaid taxes at $27.2 million), but Revenue Management is yet to confirm exactly how much is now outstanding.

Beer says back in 2011, it was considered most of the $21 million owed to government was probably uncollectable.

“Finding a solution to this by first understanding why it was happening was an important task to developing the (Democratic Party 2014) tax amnesty policy.”

Cook Islands News
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