Gov't announces $72.9B budget
-Threshold increase means $400 extra per month
-10% tax on all phone calls
-$7.2B for national security
By Gitanjali Singh
Stabroek News
March 29, 2003
The government yesterday announced a $72.9B budget, which sought to redistribute income, tinkered at tax reform and provided little meaningful relief to workers or stimulus for businesses.
Ten per cent of the budget expenditure, or $7.2B, would be on national security, the details of which were not declared. However, Finance Minister, Saisnarine Kowlessar announced that the government had approached the Inter-American Development Bank (IDB) for a US$10M loan to reform the Guyana Police Force among other activities. The government, he said, also intended to establish a National Commission on Law and Order.
Kowlessar announced as budget measures for this year, an increase in the non-taxable income threshold from $18,000 monthly to $20,000 but this would only provide a $400 extra on workers' pay pockets and would be largely negated by the 10% tax on all local calls announced by the minister.
The non-taxable threshold was last increased seven years ago and unions and businesses have clamoured for its increase to at least $25,000 per month to give meaningful relief to workers. The threshold in 1997 at $18,000 per month was equivalent to US$125 but the new threshold is only worth US$104. Kowlessar says the new threshold would remove the chore of filing tax returns for 13,500 workers.
No salary increases were announced in the budget and the government again expressed its intention of engaging the unions in a multi-year wage package for workers.
Kowlessar announced, effective April 1, a 10% tax on all domestic telephone calls, be it cellular, landline or fax. An increase in the withholding tax on interest bearing income and on payments other than interest to non-residents was also announced. This rate moves to 20% from the 15% first announced in 1995 when the government had moved to reform taxes to allow for equity and had applied a 15% to deposits, loans secured by bonds and any other interest income. The increase is also effective from April 1.
The tax measures announced by Kowlessar and the increase in the threshold are all partial adoptions of comprehensive reform measures outlined by the International Monetary Fund (IMF) last May. The Fund had recommended a three-stage approach to raising the non-taxable threshold. In the first instance, it advised it be raised to $240,000 per annum or $20,000 monthly and for the tax rate of 20% to be applied to income between $240,000 and $396,000 and not $240, 000 and $350,000 as is presently the case. The budget was silent on this. An increase in only the threshold without addressing the personal income taxable base only reallocates income within the tax bracket and realises a saving of $400 per month per worker earning $20,000 per month and above.
Kowlessar also announced that the government would immediately begin preparations to have the consumption tax scheme reformed to allow for the launch of a value-added tax (VAT) by 2006. Technical assistance, he said, would be sought to ensure this was done.
He said the government had completed a detailed examination and assessment of the tax administration and the need for tax reform but felt such reform should be revenue neutral while spurring investments and savings and supporting poverty. The budget was silent on the IMF's recommendation that the discretionary powers of the President and Minister of Finance to grant remissions be abolished.
Kowlessar indicated that the government intended to strengthen the Income Tax Act this year to enable the Guyana Revenue Authority (GRA) to enforce presumptive assessments on professional and other categories of self-employed persons.
The government, he said, would also this year make a concerted effort to improve the efficiency of the tax system and the administrative capacity of the Guyana Revenue Authority as it sought to improve tax administration. He said that a number of critical vacancies within the GRA would be filled and the GRA Act and regulations would be reviewed. The government, he said, had significantly increased the budget of the GRA to achieve these objectives and had secured a US$300,000 grant to upgrade skills.
Kowlessar said the government would follow the IMF recommendation and enshrine as far as possible, the incentive regime into law. The IMF had said that effective incentives for investments ought to be legislated in the appropriate tax acts for any investor who satisfied clear, objective criteria. Kowlessar said this would mean amendments to the Customs Act, the Financial Administration and Audit Act and the Income Tax Act to enhance Transparency and administrative efficiency.
The budget presentation cited the difficulties confronting the domestic economy, especially in face of the war in the Middle East, rising oil prices and the potential for lower aid flow and pressures on the domestic front, which included political instability and crime.
Despite this, the government expects the economy to grow by 1.2% this year, against 1.1% last year. It expects inflation to be 5% reflecting adverse price developments in the utilities and the feed through of prices from imported fuel. Current revenues are expected to grow by 3.2% reaching $46B this year with the GRA expected to rake in 92.4% of this (Customs $20.2B against $18.7B in 2002 and IRD $22.3B against $22.2B in 2002).
Again in economic growth, the government expects sugar to continue its upward production levels to reach 340,552 tonnes, a 2.9% growth. Rice output is expected to decline to 296,388 tons or by three per cent. Rice output last year was down by 11%. The livestock sector is expected to grow by five per cent with other agriculture expected to increase by three per cent.
However, mining and quarrying production is expected to fall by 7.1% reflecting largely the decline of production by Omai Gold Mines Limited and the delayed recovery of bauxite. The engineering and construction sector is expected to grow by 4.7% as a result of the major projects under the Public Sector Investment Programme and the growth in private construction. The manufacturing sector is projected to grow by three per cent while transportation and communication services is also expected to grow at the same level. Distribution services are expected to grow by 2.6%, rent of dwellings by two per cent, financial services by 1.5% and other services by one per cent.
These compare with sugar output of 331,057 tons in 2002, 16% higher than 2001; rice production 10% down at 287,755 tonnes; livestock increase of five percent; mining and quarrying decline of 6.9% and manufacturing sector growth of 2 per cent.
The budget again touches on modernizing the traditional sectors and promoting growth in the non-traditional areas.
