Taxing problems are not restricted to Venezuela alone

<a href=www.vheadline.com>Venezuela's Electronic news Posted: Sunday, May 18, 2003 By: Oliver L. Campbell

VHeadline.com commentarist Oliver L. Campbell writes: I refer to the news that Captain José Vielma is to be the new head of the Venezuelan Tax Office.

One day, when I was in PDVSA, a Tax Inspector asked to see me ... he told me they were going to carry out an audit of the tax paid by PDVSA’s employees. I could not refuse this request, but told him. in no uncertain terms. no one escaped paying tax on his or her salary because the deductions were all computerized as part of the payroll program.

I was sufficiently annoyed to ask him why he did not go round to the Colegio Medico, el Colegio de Abogados, el Colegio de Ingenieros and all the other professional colleges and ask for a list of their members ... they could then check if all those members had all made tax returns and, if so, how much income they had declared.

• The tax law at that time allowed the Inspector to look at the taxpayer’s lifestyle and make an estimate of his income (estimado de oficio) which the latter could only refute with evidence.

The Inspector, a nice guy, was quite honest with me ... he told me he had to meet a numerical target of inspections and, that by coming to PDVSA, he could increase the number quickly with relatively little effort. He agreed it was unlikely he would find anything amiss with the employees’ tax payments as made by the company.

When I lived in Caracas, I resided in a pleasant urbanization that was in a cul-de-sac. Because it was so small, we knew our neighbors quite well and often socialized, mainly with barbecues or small dinner parties. My neighbors were mostly professional people in private practice and earning much more than myself. However, as we got to know one another better, I soon found out I was paying far more tax than they did. My tax was automatically deducted from salary, whereas they paid ... in fact underpaid ... on the basis of what they declared as their earnings.

This problem is not restricted to Venezuela.

Those in private practice or with their own businesses the world over have ... and take ... the opportunity to under-declare their taxable income. The difference is that most developed countries know this, and the tax inspectors devote more effort to those people than they do to salaried employees.

In the UK, the tax inspector can estimate such peoples’ income from their lifestyle e.g. where they live, what sort of a house they have, if they send their children to private schools, where they spend their holidays, what clubs they belong to, how may cars they have, etc.

The onus is then on the taxpayer to refute his estimate i.e. you are guilty until proven innocent ... this is tough, but it is the only way to make sure they pay their fair share of tax.

I hope Captain Vielma will not mind receiving some advice from one who realizes how important it is the government increase tax collections.

a) Forget about employees in medium and large companies whose tax is deducted through the payroll. Unless the employer is a crook, everyone will pay tax and of the correct amount. b) Do not set targets for checking employees’ tax payments. Make sure effort is directed where extra tax can be collected. c) Go round to all the “colegios” and obtain a list of their members. Check out all members who are not full-time, salaried employees. Do not be afraid to make estimated assessments of their income (estimado de oficio). d) Start keeping statistics of the average gross margins for each type of business. It will soon be possible to see those which are out of line and need to be checked. e) With limited resources, the inspectors must make a list of priorities geared, not to numerical targets of inspections, but to those most likely to increase collections. f) Pay your inspectors a good wage so they are not led into temptation.

Finally I wish Captain Vielma all the best in his most challenging position.

Oliver L Campbell, MBA, DipM, FCCA, ACMA, MCIM  was born in El Callao in 1931 where his father worked in the gold mining industry.  He spent the WWII years in England, returning to Venezuela in 1953 to work with Shell de Venezuela (CSV), later as Finance Coordinator at Petroleos de Venezuela (PDVSA).  In 1982 he returned to the UK with his family and retired early in 2002.  Campbell returns frequently to Venezuela and maintains an active interest in political affairs: "I am most passionate about changing the education system so that those who are not academically inclined can have the chance to learn a useful skill ... the main goal, of course, is to allow many of the poor to get well paid jobs as artisans and technicians."  You may contact Oliver L Campbell at email: oliver@lbcampbell.com