Underground economy flourishesEveryone suffers under heavy tax burden [Archives:2004/706/Business & Economy]

January 26 2004

By Ali Ali Shibami
For the Yemen Times

The question is, until when are we going to run inside a dark tunnel and narrow alleys? Until when are we going to keep dreaming of a strong economy while we have not yet given event to it?
One would could also ask for how long would we continue moaning due a disease deeply eroding our national economy? Are we to continue holding meetings and preparing academic studies ending with issuing papers and recommendations and future plans quite irrelevant to our reality?
Punitive laws have been passed implying threats of severe accountability to whoever would cause squandering of revenues of the state or against those who would evade paying taxes, whether sale tax or consumer tax or customs duties.
Despite all that the epidemic is still spreading and alive. It's no wonder in that as some laws and regulations do outdo laws of states having stronger economies.
However unfair the laws are for the merchant, especially that of the sales tax and the consumption tax, the citizen is the one to get harmed because of the weakness of his purchasing power.
The second party to be harmed is the state treasury that would lose much amounts of money because of smuggling operations an the existence of a situation encouraging some of the state employees to play tricks against the law through utilizing some gaps in it for practicing extortion with disregard of the law.
The state complains of smuggling that is extensively spreading and causing the loss of much money that must be entered to the state treasury. Thus the state recruited many people and most of the state financial and security institutions joined forces in this regard and set up plans in the bid to prevent smuggling or mitigate it, but all that was in vain.
This is because the concerned parties are not aware of the main cause which is the high rate of customs duties and taxes in addition to considering tradesmen as a rival instead of taking them as partners sharing the national interest.
The government institutions got engaged in a war with the merchant and therefore issued unjust laws against him, particularly those related to raising the rate of taxes. I am in this regard quite sure that the only losing parties in this battle are the citizens and the state treasury, because rising taxes duties and customs duties would produce the following regrettable outcomes;
1-encouraging smuggling,
2-eliminating the remainder of committed merchants, because such merchants would suffer from gross loss under the circumstances of the presence of smuggled gods,
3-the state treasury losing very huge revenues, because what is imported across customs crossings is very little in amount compared to the smuggled goods.
Following is a statement of statistics issued by the finance ministry and customs authority of the revenues lost by the state before the application of the sales tax, and in the event of implementing it the loss would be very serious:
Out of the above statistics it is clear the rise in the dangerous average of smuggling and if this continues in this form, our national economy would be affected with complete paralysis.
So why do not try to benefit from others experiences and take the People's Republic of China as an example? It should be of no wonder for many that China has made strong leaps and developed a strong economy and has gained a world industrial reputation that attracted investments, and all that is ascribed to reducing the average of sales taxes and eliminating them.
In 1990 the domestic investments amounted to $3 billion and now after reducing customs duties and the tax by 80% to what they were in 1990 until they dropped to 7%, investments jumped to $56 billion.
The neighboring countries could be also taken as a second example. They have decreased customs duties to 5% in addition to tax exemption. As for our country the concerned people have become masters in raising the tax that can be amounted to 40% and higher till the percentage of the smuggled reached at 130% compared to the non-smuggled.
Despite many repeated requests by the private sector for cutting the average of the sales and consumption taxes and the customs duties, they are put on shelves and disregarded.
The merchant is the only side that tangibly feels closely the impact of the law in his commercial life and his dealing with the consumer, therefore all must stand faithfully resolutely to remove all that would damage the interest of the citizen and the country.