Your reply on the status of VAT from a letter writer was most welcome and informative. However, please can you verify the proposed registration threshold stated to be an annual turnover of $10,000. Surely this is a typographical error. (Editor's note: The correct figure is $10M.)
One of the basic tenets of taxation is to bring into the tax net the majority of businesses but not to overburden the administration and trading community by low turnover registrations producing little net revenue. So the right threshold is critical at start up as each potential registered business needs to be "educated" and the register needs to be manageable.
You stated that the recommendation was a "broad-based invoice type tax." Another point is the control of cash traders which must be a substantial part of the trading public in Guyana. At an early stage the thousands of market and other traders who do not have a principal place of business and without any auditable accounts as they work on a cash basis need to be considered. Admittedly there are various types of "Retail Schemes" that can be implemented including those in the European Union countries. The registration limit is also a critical factor in how many market and other cash traders are in tax net.
One specific point in your summary was that recommendations made included tax on newly constructed residential housing. Surely in the Guyana context this is counter productive to the government's drive to increase the residential housing stock. Additionally, in Guyana a substantial number of new housing stock is built by private individuals thereby increasing the burden of "temporary" registration of individuals who are not in the tax net leading also to enforcement difficulties. Most other countries make the supply zero-rated thereby not adding inflationary pressures on the housing market. In your summary, you specify the "retail end." Normally the tax covers all trading including manufacturing, wholesale, farming, services, and imports with zero rating on exports. Consumption Tax would be replaced.
Your response also noted that, "Government purchases must be subjected to the tax" and then stating that "the tax on capital goods (to be) fully creditable." This makes the government a repayment trader by receiving refunds of tax paid. There are different ways of treating government purchases; supplies can be exempt or positive rated and the decision is based on Consolidated Fund issues.
Also, is there any indication of which department of the GRA will administer the tax? In the UK the tax was introduced in 1971 and administered by Customs and Excise. Barbados and Belize put it in the Customs and Excise department, Trinidad and Tobago the Inland Revenue department and Jamaica created a new department.
Yours faithfully,
P Douglas
Editor's note:
We sent this letter to GRA Commissioner Khurshid Sattaur for his comments and received the following reponse:
"As you noted your response to questions about Value Added Tax (VAT) was based on a tax study conducted by the International Monetary Fund (IMF) - Fiscal Affairs Department (FAD) in 2002 and did not necessarily relate to Guyana's implementation of the VAT.
The GRA is committed to the Private Sector involvement in determining the appropriate VAT system.
In keeping with accepted norms where such new taxes are introduced, the process requires significant studies to be conducted. These studies provide a scientific basis for making informed decisions on issues, such as threshold matters, etc. There is currently a 'Sensitivity Study' being conducted by an expert economist consultant who will be able to advise the policy makers on the best way forward with the VAT. Based on the recommendations from this study, Guyana will be able to determine the best rates, type of VAT, threshold, instituting the tax, administrators of VAT, etc.
Additionally, Government has commenced consultation with the private sector and other non-governmental organisations, which should be able to provide the necessary inputs for the VAT. In addition to the steps listed above, the government has already taken the following steps which will help the process move forward:
1. Established a Steering Committee to oversee the implementation of VAT.
2. Established a VAT In-House Committee at the Guyana Revenue Authority to oversee VAT's implementation.
3. Commenced legislative drafting.
4. Designed a detailed public relations strategy.
Several options are being looked-at with a view to garnering the best possible application of the VAT.
We do appreciate the views made by the writer, Mr. Douglas however, I wish to point out that such issues on the VAT are not peculiar to Guyana. Several countries around the world, including a few of our Caricom neighbours, have already instituted the VAT."