In part one we looked at the initiatives taken by the Minister in order to increase the revenue base, in addition the once we mentioned, he introduced the following the changes:
1. PROPERTY RENTAL INCOME
Beginning of 2011, the Minister was being advised by his close circles that a huge rental income could be raised from the rented properties in the country; however after three months of country wide survey, it became clear to him that the expected rental income tax is immaterial , dropped it after spending many labours hours and financial resources.
2. VALUE ADDED TAX
Value added tax is a type of tax which governments use to discourage the consumption of harmful products such as tobacco and alcohol, however the current minister of finance imposed this type of tax on essential consumable products such as food without classification the different businesses categories such as small, medium and big sized companies, and without predefined VAT registration threshold.
Further, the collection of this type of tax requires training of the target companies as far as VAT accounting system is concerned, let alone conducting such training he distributed to the respective companies’ premises ministry of finance receipt book, which is in fact unnecessary. Normally, he would have set the enabling environment for the administration and collection of this tax such as the support and encouragement of independent accountants and auditors who would have verified the tax payable by the respective companies and serves as independent arbitrators between the government and the businesses community.
3. INCREASE OF THE TAXABLE VALUE OF IMPORTED SOFT DRINKS
The Minister’s increase of the taxable value of imported soft drinks, which he justified as an encouragement to local soft drinks producing companies is a welcome move provided that it has been thoroughly studied before the introduction of the change.
Such study has not been conducted by the Ministry. This study would have looked at the implication of the increase in areas of business competition and free market economy dynamics which is determined by the rules of market demand and supply.
Further the study would have looked at the impact of the government revenue, such as whether the change would have increased or decreased the government tax income.
On the other hand, it is questionable why the Minister has chosen this sector, while the majority of the consumable goods within Somaliland are imported from overseas?
In practice countries of the world adopts import substitution policy, which looks at the overall country imported products, category by category, essential goods versus luxuries goods, harmful products versus live saving products, sufficiently locally produced products versus, partially or none locally produced products.
Further, when a given country adopts the import substitution policy after consultations with concerned departments such as commerce department, revenue authority, chamber of commerce and industry etc, then it is submitted to cabinet or the council of ministries for discussion and approval.
This clearly pinpoints, the poor economic management approach of the Minister of finance , which is mere hear and say, without proper analysis, and with consultations with poorly trained,biased,unobjective, lacking integrity and professionalism, unindependent,unethical and inexperienced close circle individuals with conflicting interests in policy change impacted companies.
Moreover, the Minister violates the rules of conflict of interest and related party transactions stipulated by international auditing and accounting standards. Those standards guide us to make decisions objectively and to declare any beneficial interest we may have on the concerned enterprises. In addition, those standards guide us to be vigilant for related party transactions. Related party transactions are the transactions which minister’s close family members such as the spouse, children, close friends, crucial ministry staff, have beneficial interests such as shareholding, kickbacks, and employment contract etc. More crucially the Minister does not closely observe that the award of contracts to close family members and friends without proper competition and disclosure is a serous fraud or a corrupted practice.
Please follow the other parties of this series.
By: Mohammed Dahir Ahmed (Hiilliye)
Certified Chartered Accountant (ACCA