By Gitanjali Singh
Stabroek News
June 14, 2001

Guyana can successfully implement a single-rate value added tax (VAT) in two years time if it makes adequate preparation for it, Commissioner General of the Guyana Revenue Authority, Edgar Heyliger said yesterday.

Such a tax if introduced here would replace all consumption taxes which range between 10% to 50%; the purchase tax on vehicles; certain stamp duties; the travel tax on tickets; the travel voucher tax; the entertainment tax and the tax on telephone calls.

Customs duties, income and corporation as well as other similar taxes would not be replaced but could be lowered as a result of the efficiency gains in tax collection as a result of the VAT broadening the tax base and increasing revenue intake. .

However, before the VAT is introduced, there is need for tax and administrative reforms, Heyliger said as he made his general observations yesterday at a forum at the Ocean View Convention Centre to introduce the concept of the tax to Guyana. Chartered Accountant, Christopher Ram, had raised the need for VAT to be introduced in Guyana as a part of wider tax reform measures.

Heyliger told the forum that administrative reforms are currently underway citing the establishment of the Revenue Authority.

However, he echoed the sentiments of head of Trinidad's VAT implementation team, Michal Yvette Andrews that an impact study on the introduction of the tax in Guyana would be crucial before any reforms are undertaken since it would be replacing a series of levies.

Heyliger told the audience that if the impact assessment is positive and the government decides to go that route, then expenditure would have to be committed to carry out tax reforms and further administrative reforms.

He said he was sure there would be consensus at the end of the day that the tax would be applied at the retail stage and the next question to be asked is what would be taxed.

The Revenue Authority boss said that the VAT would have to be levied on a range of goods and services and certain goods would be exempted along with certain small traders.

This does not mean, he assured, that small firms would be exempted from paying taxes as levies such as the turnover tax could be used to capture these. Ram had raised the issue of tax evasion in Guyana as well as the discretionary nature of the tax system which does not allow for a level playing field for investors.

Heyliger recommended that in introducing a VAT in Guyana, one must start from the position that all services would be taxed unless specifically exempted and not the other way round. He also said that basic food items; health care; banking services; education and insurance services ought to be exempt from the VAT as they would not fit into the scheme. In the case of basic food items, this would allow for the poor not to be burdened further by taxes.

He shared the view of Dr Jo Beth Mertens, Professor of Economics and a World Bank tax expert, who was a presenter at the forum, that the VAT is not a simple tax to administer like an excise tax.

For Heyliger the success of introducing the VAT in Guyana also hinges on having a literate population willing to keep basic accounts and with a tradition of voluntary compliance.

"Otherwise we would be better off with a well chosen tax system of excise taxes," he said.

Heyliger agreed with the sentiments expressed by Andrews and another presenter, John Williams of Goddard Enterprises of Barbados that the issue of remissions is crucial to the integrity of the entire system of VAT.

He noted that if timely remissions are not made, then people would not want to pay VAT taxes and this would defeat the purpose of the exercise. He noted that in Guyana taxes go to the Consolidated Fund and funds are then appropriated and referred to the difficulty in persons getting refunds out of the current tax system. Williams spoke of difficulties in getting timely refunds in Barbados as well in his presentation.

Nevertheless, Heyliger feels that a well planned and thought out VAT system could be implemented in Guyana in a matter of two years if it is adequately prepared for.

Mertens in an example, noted that if a firm imports an item that costs $2500 and the tax rate is 10%, then he pays $250 in taxes. After transforming this item the firm sells it for $4000 and collects $400 as the VAT. The difference between what he paid in taxes and what he collects as the VAT on the consumption of the item is $150 ($400-$250) and it is this sum which has to be remitted to the government.

Mertens, who assisted with the implementation of the VAT tax in Russia, the Ukraine and Malawi said that introducing VAT get rids of cascading taxes which are equivalent to two and a half times the standard tax rate.

VAT, she asserted, is a revenue booster, allows for neutrality if implemented properly and enables efficiency in the tax system. She encouraged Guyana if it adopts VAT to do so with a single rate and with very few exemptions to level the playing field for businesses.

It is equivalent to a sales tax and a major advantage is that it is collected at different stages of the production process if implemented properly.

She pinpointed its desirable features as its allowance for a single tax rate and zero-rating of exports; limiting exemptions to areas which are hard to tax; allowing for full deductions for capital expenditures; giving refunds and allowing for a higher threshold for registrants. She noted the inefficiencies in a tax system which discriminates and has many exemptions. She said even in the case of basic food items the VAT should be applicable to limit inefficiencies and the government can embark on target programmes for the poor.

She argued there is nothing inflationary about the VAT but said on its introduction there may be a one-off jump in prices. However, if the effective rate of taxation falls with the introduction of the VAT, there will be no reason for prices to escalate.

She opined that the current system of consumption taxes, which accounts for 77% of customs revenues, does not seem to be working well as the tax base is narrow and complicated.

She suggested that if there is the political will from top to bottom, then even a less developed country can successfully implement the VAT which calls for tremendous preparation including training and public awareness.

Andrews dealt with the issues that Guyana has to consider for successfully implementing the VAT whilst Williams tackled the Barbados experience. He was in favour of the VAT.

Ram spoke of the need to have the VAT carefully considered in the context of tax reform to allow for the development of Guyana and for the inclusion of all stakeholders in its consideration.