A taxing tradition BUSINESS PAGE
By Christopher Ram
Stabroek News
August 4, 2002
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Introduction

During the recent Full Court tribute to the late luminaries Messrs Lloyd Luckhoo and B O Adams, Senior Counsel Ashton Chase referred to the case Inland Revenue Commissioner and Attorney General v. Lilleyman and others which came before the British Caribbean Court of Appeal in 1964 and in which Mr Luckhoo and J O F Haynes QC acted for the respondents. That case remains as significant today as it was in 1964 for its pronouncements on the powers of the State to impose tax and the overriding authority of the constitution. The Court determined that there were three elements of a tax: 1) it must be imposed by the State, 2) must be compelled and 3) must be for public purposes.

The power given in then article 72 of the Constitution to make laws for the peace, order and good government of Guyana, is in the nature of an enabling power. Being an implied power it confers a jurisdiction to do all such acts or employ such means as are essentially necessary to its execution, including the power to levy new taxes. However, the Court ruled that the power to legislate for the peace, order and good government provided for in the Constitution does not authorise the enactment of a law which contravenes the provisions of the Constitution which gives such power even though such a law has been duly passed by the legislature. While this column does not claim expertise in this highly arcane matter, the question of taxation is of direct interest and has important implications for the business community as indeed the entire populace, not only in terms of what it does for the economy, but also with respect to the broader issue of property rights and the exercise of governmental power.

The danger that "there may be circumstances in which legislation, though framed so as not to offend directly against a constitutional limitation of the power of the legislature, may indirectly achieve the same result..." is made worse by the perception that the courts which have responsibility for the interpretation of legislation may not be as independent as they should be. The courts are also badly under-resourced while as the recent Globe Trust decision shows some institutions of the state may intentionally or otherwise abuse their authority at the expense of the citizen. The public, however, must be pleased that Chief Justice Carl Singh was not only prepared to rule against the Bank of Guyana but also to criticise it for what he called "its misconception of its powers." This could be considered a landmark decision and did quite a lot to restore the faith of many persons in the judicial system.

The Bata Case

There seems little doubt that the Lilleyman case will be revisited from time to time but there is one even more important case which has haunted this country for over twenty-five years and which this column thinks needs urgent attention. Indeed, many of the country's leading attorneys consider that the decision was 'bad' and influenced by then prevailing political considerations. That case which is referred to as the Bata Case and is quoted in the West Indian Reports [(1976), 24 W.I.R.] saw twenty-three companies issuing a joint writ against the Commissioner and the Attorney-General calling into question the constitutionality and validity of certain provisions of the tax laws, including those relating to appeals. Specifically, the law provided that taxpayers who wish to appeal to the Board of Review or to the courts must lodge respectively 2/3 or the whole of the amount in dispute as a condition of the right to appeal the above-mentioned pieces of legislation. Those companies sought from the Court, inter alia, a declaration that the requirement of the payment of part or the whole of the disputed tax creates great hardship on the taxpayer in that it fetters his right to appeal and his freedom of movement; it is unconstitutional and in breach of the fundamental rights provisions entitling the taxpayer to the protection of the law as set out in the Constitution.

However, the Court found that it could not be unconstitutional for the legislature to enact as a condition precedent to conferring the right of appeal on the taxpayer that he should lodge 2/3 or the whole of the tax in dispute before he appeals from the Commissioner's Assessment to either the Board of Review or to a judge in chambers. The deposit requirements positively impose no fetters on the taxpayer's right to appeal because he has no such right unless he fulfils those requirements. Interestingly, Justice Crane, noted that the intention behind the impugned legislation as gleaned from its history being against tax evasion, appeals to the Court of Appeal on the basis of hardship created by the legislation, leaves the Court unmoved and ill-disposed to lend an ear.

The Court ruled that Parliament was justified in imposing whatever conditions it considered just on the right to appeal in order to frustrate the intention of tax dodgers who are not fairly sharing their burden of taxation and who can delay payment of taxes for inordinately long periods by frivolous appeals, all of which lead to short collection of revenue, moreover the court openly expressed the opinion that this is as it should be.

It was argued for the appellants that the legislation gave to the Commissioner of Income Tax what was effectively a judicial function while his real function was merely administrative i.e. to assess the tax and not to determine the extent of the civil right or obligation which is the exclusive preserve of the courts.

Because of what seemed to be a misconception of the nature of appeals, i.e. that they are merely used to frustrate the proper functioning of the tax administration, the Court seemed particularly unsympathetic and ruled that the right of access to the courts must be subject to the fulfilment of the deposit requirements which are imposed in the public interest so as to ensure that the taxpayer does not pursue frivolous appeals.

Tax evasion

There is a wonderful passage quoted in this case which is worth repeating: "For years a battle of manoeuvre has been waged between the Legislature and those who are minded to throw the burden of taxation off their shoulders on to those of their fellow subjects. In that battle the Legislature has often been worsted by the skill, determination and resourcefulness of its opponents of whom the present appellant has not been the least successful. It would not shock us in the least to find that the Legislature has determined to put an end to the struggle by imposing the severest of penalties. It scarcely lies in the mouth of the taxpayer who plays with fire to complain about burnt fingers."

The truth is that whenever a matter of tax evasion is involved courts have invariably been unsympathetic to the taxpayer. They have always adopted a hard-line policy; they turn a deaf ear to appeals of hardship. See Howard de Walden v. I.R.C. (18) (1942) K.B. at page 398, a "tax evasion" case, where the court said: "But quite apart from this, the argument based on hardship leaves us unmoved."

And in the Bata Case, it was said that even if it can be argued, contrary to what has been shown, that the enormity of the deposit provisions have in fact impeded the right of access to the courts, then as it seems that the impugned legislation was passed in the public interest, the taxpayer should not be allowed to evade payment of his income tax.

While the arguments across the divide are well-reasoned and seem to have merit, the fact is that the requirement for the deposit is enshrined in the law and has been ruled as proper by the courts. The ruling appears to be clouded by the prejudicial view that all appeals are born of sinister motives, and ignores the reality that as the Globe Trust issue shows, mistakes can be made and it would be unfair to penalise the taxpayer twice. With the pace at which appeals by the Court can be heard, paying the deposit is a deprivation of property.

The legislature must recognise that this legislation can penalise the innocent, and introduce amendments to the deposit requirement. A much lower percentage should be set but it should be up to the Court to decide whether the appeal was indeed frivolous and to impose such additional penalties as it deems necessary.