Why culture of cheating costs businesses millions

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Thousands of businesses in Trinidad and Tobago are missing out on millions in potential sales and investment by shortsightedly skipping out on taxes and national insurance, and generally cheating the rules.

The problem though is not just that this is unethical and illegal, it is also against the selfish self-interest of those same people.

There’s no point , though, in scolding people to obey the rules. Any attempt will be generally ignored or mildly mocked.

In TT, as in many developing countries, the social contract is a rather frayed and tattered document. There are very few in TT who believe that they receive value for money from their tax dollars or government services.

This widespread belief enables the train of justification for stepping past the rules, the moral reasoning being that they aren’t really doing anything wrong, they’re just keeping what is theirs by right and preventing it from going into the wrong hands – namely those of the State.

Lectures on ethics sound especially rich to most people, with the lectures coming from politicians on both sides who by the great majority, even if they support them, are roundly perceived to be somehow, even if faintly, corrupt.

If anything, in TT there is almost respect and admiration for people who have swindled their way to the top and “got away with it.” Even if publicly exposed they are almost never ostracised.

The problem though is that the widespread attempts to skirt the rules end up backfiring in ways that the people breaking those rules haven’t even thought of.

Every time a sole trader or a small business limits their takings to cash in order to disguise their taxable incomes, they are thinking about the money they’ve saved from the Government.

But what they’re not thinking about is the sales that they’re losing by not offering other payment methods like credit or debit cards, or electronic banking.

Most importantly, they’re also not thinking about growth.

Every single large scale provider contract from a multinational company, a listed company or the Government themselves requires proof of compliance with the law. Given that the Government accounts for more than half the size of the economy – with large companies accounting for a significant chunk of the rest, these businesses are in fact losing the opportunity to get to the position where they might be able to bid for these projects or contracts.

They might argue that they are too small to do so, but by being non-compliant, they ensure that will never even get the opportunity to be in the running. In this way the “small man” sabotages themselves.

Then there are the grants available from multilateral organisations like the EU or the IDB, or even state agencies like ExporTT. All of these requires some proof of compliance. This is literally free money that so many businesses are missing out on.

Most importantly however, dodgy dealings and skipping the rules prevents businesses from growing and taking on outside investment or loans. Companies are effectively admitting to themselves that they have no willingness or ability to take on outside capital or to expand. Even if you have plenty of cash, shutting out outside capital is a sure recipe for stagnation.

And it’s not just capital that’s being shut out, but managerial talent as well. One reason why so many small businesses don’t expand is because of fear that if they bring on their first few employees from outside their family, they’ll either be robbed or their own practices will be exposed.

I’m not just taking aim at small firms. To be sure, plenty of big ones do the same, in increasingly more sophisticated ways. But we must appeal to the small companies and traders first, because they are the ones that suffer the most by their miscalculated actions. They deserve empathy and redemption.

The Government is missing the beat by appealing to morality and ethics. Given the present state of the social contract, that won’t work. But breaking the rules is costing businesses millions in grants, sales, capital and growth. That’s why we need a new campaign to show businesses exactly what they’re missing out on. It is only once the Government and multilaterals appeal to self-interest that they can make behavioural change.

Kiran Mathur Mohammed is an economist and co-founder of medl, an IDB Lab, Microsoft, WHO & FT backed health tech company, winner of the TT Chamber Champion of Business award