VAT should see adjusted tax structure
Editorial
Kaieteur News
May 16, 2007
Guyana introduced Value Added and Excise Taxes at the start of this year, and since then, the revenue collected has surpassed expectations. That is what the people in the Guyana Revenue Authority have been saying.
At the same time, the politicians and analysts say that there has been a hike in the cost of living, something that the Commissioner General of the Guyana Revenue Authority is denying on the grounds that, while many people rushed to hike prices following the announcement of VAT, the prices have begun to stabilise.
But for all that, some items are costing more because, prior to the introduction of VAT, they attracted a 10 per cent consumption tax; now they attract 16 per cent VAT. There is a zero rated status for some goods, and it is this that has helped to stabilise the prices of the goods.
However, we know that the price rise is being fuelled by the businessmen who, in the past, did not find it necessary to declare all their taxable earnings. With the introduction of VAT, they cannot hide any longer, but they are persisting with their profit margin -- which for many must be higher than the pre-VAT period because of the increased taxes that they must now pay.
But it is the unprecedented returns from VAT that one must now focus on. When the Finance Minister presented the National Budget in February he said that the VAT returns would have been in the vicinity of $24 billion. However, from indications, the returns would be much greater, and this brings us to the comment by the officials that VAT would be revenue neutral.
Revenue neutral simply means, in this instance, that the government would not seek to use VAT as an excessive source of revenue earning. This, therefore, begs the question about the future of the additional sums collected during the course of this year.
But Government is not known to give away money. This is evidenced by the funds garnered from the Guyana Lottery. It is not to say that the Government has a licence to dispose of funds in a willy nilly manner, but, then again, there are areas that beg expenditure.
Ready examples are the senior citizens homes; the various recreational facilities, which are rundown and so limit the production of sportsmen, the likes of which flew our flags proudly in the past and returned with honours.
Some of this extra money could go toward revamping the personal income tax structure for the public sector workers.
If, indeed, as the International Monetary Fund projects, VAT will rake in sums in the vicinity of $40 billion, then it behooves the Government to use the additional money on those things that beg expenditure but which at this time the Government is constrained to undertake largely because of the IMF conditionalities.
We notice that the IMF has also requested that the Government do not zero-rate further items. It is as if the IMF is keen to witness the suffering of a people who have been under its yoke for nearly two decades. The prescription of reduced public sector spending, limited public sector labour force, and privatisation have not worked except to make life harsher.
Jamaica opted out of the IMF programme on the grounds that it appeared to be a recipe for riot by the already burdened population.
Guyana, however, has refused to adopt that course of action largely because certain foreign inflows may no longer be forthcoming.
The good point of all this, not least of all the VAT, is that the tax net has been widened. There should be a review of the personal income tax system. This is something that the trade unions have been seeking for some time, and given the enhanced VAT collection — by some $16 billion — and the fact that VAT should be revenue neutral, and further, since there is talk that the people are poorer given VAT, then there is no reason why the conditions of the working class should not be improved by way of a greater take home pay.