Steering clear of turbulence
By Rupert Gooding
This is the first article in a series intended to assist business persons to develop a workable understanding of Trinidad and Tobago’s income tax legislation and administration.
Experience has shown that non-compliance with the tax laws has led to undesirable, unfortunate and even unfair consequences to a person (“the taxpayer”). Such outcomes could be extremely detrimental to the taxpayer financially and otherwise.
A good starting point is for the taxpayer to appreciate the importance of filing an income tax or corporation tax return with the Board of Inland Revenue (“BIR”).
Voluntary Tax Compliance
Trinidad and Tobago’s tax system is largely based on voluntary compliance. This principle means that it is the taxpayer who determines the extent of his tax liability in the first place and then informs BIR as to this amount through the filing of a tax return. The word ‘voluntary’ in this context, must not be taken to mean that the taxpayer has any option open to him as to whether he should file a tax return or not! All income and corporation tax returns are now filed online through the Inland Revenue Division website at ird.gov.tt
This principle ceases to apply when a taxpayer who, having failed to file a tax return, disregards BIR‘s request to file it. In that event, BIR would be forced to use whatever information it has at its disposal to determine, to the best of its judgment, the estimated amount of the taxpayer’s tax liability. This result may not usually be in the best interest of the taxpayer as the amount of tax assessed could be way above the true amount. To avoid this outcome, the taxpayer should ensure that he files his tax return when it is due or soon afterwards. Further, if, having not filed, he receives a written request to file, it is strongly recommended that he does so as soon as possible.
Assessment of Tax
The information contained in the tax return forms the basis for an assessment of tax by BIR. BIR, in due course, would issue a notice of assessment that would contain the chargeable income of the taxpayer and the tax payable thereon. The notice usually mirrors the tax payable set out in the return except where there are mathematical or other clear errors made on the return which BIR would usually correct itself.
The notice of assessment is an extremely important document. It shows that BIR has processed the return. It also informs the taxpayer of the final tax payable or refundable and his right to object to the assessment.
Additional Assessment of Tax.
Even where a taxpayer receives a notice of assessment, it does not follow that BIR is satisfied with the tax return he has submitted. BIR has the power to review the tax return and select it for an audit examination. This power can be exercised at any time before the expiration of six years from the end of the year of income for which the return is filed or three years after it is filed whichever is later.
Once an audit has been concluded and BIR discovers unreported income resulting in an increase in tax payable, it will make an additional assessment and issue another notice of assessment to the taxpayer.
Objections to Assessment of Tax.
A taxpayer has 30 days from the date of issue of a notice of assessment to dispute it. He does so by filing a written notice of objection. Late filing may be excused by BIR if the taxpayer has reasonable grounds for the delay.
The notice must state the precise grounds of objection. It is important for the taxpayer who objects to an assessment to explain his grounds in as much detail as possible. If the matter goes further than the objection stage, the taxpayer may be prevented from adding any additional ground. The taxpayer does not need to pay any additional income or corporation tax assessed at this stage, although it is in his interest to pay any undisputed amount. If the objection is not determined in the taxpayer’s favour, interest at the rate of 20% per annum applies to any tax outstanding from the date the outstanding tax was originally due and not from the date of determination.
Note that in the case of a value added tax audit, any additional value assessed must be paid or security in the form of a bond provided or BIR waives payment before the objection can be entertained. Many may regard this as a case where the taxpayer is guilty until proven innocent!
Appeals to the Tax Appeal Board against Determination of Objection.
Where a taxpayer disagrees with the determination of an objection, he has 28 days from the date he was served with the decision, to file an appeal with the Tax Appeal Board. If he is still aggrieved, he has further recourse to the Court of Appeal on a point of law.
In subsequent articles, the focus will be on how income subject to tax is determined in accordance with the Income Tax Act and the Corporation Tax Act, in particular.
About the Author
Rupert Gooding is a chartered accountant and attorney at law. He is a former Director of Revenue Training and Acting Assistant Commissioner, Board of Inland Revenue.