Illegal trading will lead to civil unrest, warns MP [1]
Friday, August 30, 2002 - 10:00. Updated on Wednesday, February 10, 2016 - 15:16.
From Matangi Tonga Magazine Vol. 17, no. 2, August 2002.
The Informal sector of the Tongan business community is the biggest enemy of the struggling Tongan economy, believes the Vava’u no. 1 People’s Representative, Trevor Guttenbeil.
He said that the people in the informal sector, which is made up of individuals, and private businesses, were stealing millions of pa‘anga from government by simply not paying their dues.
He said that the informal sector had successfully beaten the system in the area of custom duties collection, and that commercial products were getting into the country duty free and causing havoc in both the retailing market and revenue collection of government.
Duty free trading
The negative impact of the illegal trading in duty free goods on the small economy and the social structure of a developing country like Tonga could be devastating. Trevor said that the argument that goods were cheaper in some shops and therefore it was good for the consumers was not relevant, “because the cheaper prices are only a few seniti less than the prices charged by shops in the formal sector, and the government’s share remains with them, so the informal sector is making a lot of money. Government is also deprived of the revenue that it needs to offer a quality public service.”
Trevor said that a poor public service would attract the establishment of private enterprises, offering replacement services that only the wealthy could afford.
“My main concern is that with the current state of our economy, a drop in the value of the pa‘anga, and high inflation, more and more people will be attracted to join the informal sector, more businesses and individuals will try and escape paying custom duties,” he warned.
Trevor likened the issue of custom duties to the sport of pole vaulting, when at a certain height only a very few jumpers could make it while the rest of the jumpers would go under.
He said he did a study on the informal sector when he was at university, and when the informal sector was first identified in the developing economies of South American countries, “most economists at the time decided to let it go, they argued that it was part of development, so it continued to flourish.”
The devastating impact of this illegal practice was not realised until the stark contrast between the rich and poor in the community lead to social unrest, and in some countries civil wars, “and that is my concern.”
Trevor’s solution to the problem, which he raised in parliament, and received the nodded approval by most of the Cabinet Ministers and some of the elected members of the House, was for duties on imported goods to be lowered. “Lowering the duty will give the culprits less incentives not to pay their dues. We expect that everyone will pay, unlike when the duty was high and only the few honest people were punished by having to pay duty.” Trevor said that government would get more revenues and the retailing businesses would be competing on a level field.
Restore confidence
Trevor believed that something should be done to restore confidence. He suggested that because of the unstable exchange rate and the declining value of the pa‘anga, which could have a devastating impact on importers and the confidence of business people, he proposed that government set a minimum rate for the value of the pa‘anga, and for custom duties to be calculated based on quantity and not on value as just temporary measures until the exchange rate stabilises.”
Trevor explained that under the current situation, if the exchange rate dropped by 25 per cent the price of imported goods would automatically go up by 25 per cent, then added on to this price hike were the duty, wharf charges and sales tax. “and in the end the price of imported goods will be far too expensive.”
Trevor holds a Master in Commerce from the University of Auckland, and began working for government in 1992 in the Treasury and later with the Ministry of Labour and Commerce. He resigned from government and returned to work for a family business in Vava‘u until he successfully ran in the Tonga Parliamentary Election early this year. In the House he is regarded as a sharp shooter. He does not speak often, but when he does his views are respected.
Irregularity
Concern about the irregularity in the collection of government’s revenues had been an on going problem and in July 2000 a new Revenue Department brought under its management three of the government’s main revenue collection divisions, the Inland Revenue, Customs and Trade, and the Postal Service. The department is currently being managed by ‘Aisake Eke, the Accountant General. ‘Aisake said that there had been a marked increase in revenue since the establishment of the department, in the last financial year collections were around $73 million, compared to around $50 million in previous years.
‘Aisake said that the main problem area had been with alcohol and cigarettes but a recent shake up within Tonga’s sole duty free outlet, Leiola Duty Free, may have further tightened things up, but he conceded that they would have to remain on the look out all the time.