VAT all clear
By Chamanlall Naipaul
Guyana Chronicle
December 15, 2006
THE stage is now set for implementing the Value Added Tax (VAT) as several pieces of legislation required for its coming into force from January 1 next year were approved unanimously in the National Assembly yesterday.
The Value Added Tax Order, the Value Added Tax (Transitional) Regulations and the Value Added Tax (Amendment) Regulations motions moved by Finance Minister Dr. Ashni Singh, received support from the main opposition People’s National Congress Reform-One Guyana (PNCR-1G) but the party felt a few areas of concern should be addressed.
Introducing the motion on the Value Added Tax Order, Singh noted that in accordance with the government’s position of ensuring that VAT does not have adverse effects on businesses and the cost of living, it undertook to study and monitor closely its impact to ensure its smooth and effective implementation.
In this regard, he said, the legislation seeks to zero rate basic food items which enjoyed such a status under the current system, as well as several other items including medical and agricultural inputs, computers and accessories, fuels and local building materials.
However, Singh cautioned that the implementation of VAT, while it has been successful in other countries, has to be tailored in accordance with local peculiarities.
The minister said that both solicited and unsolicited responses and comments the government received on the issue were valuable and it has been better informed as a result of the feedback it received through informal and organised consultations with the private sector.
Identifying the advantages of VAT, Singh said it eliminates the distortions inherent in the present taxation system whereby goods were heavily taxed but services were exempted from similar taxation.
However with VAT, he said, the taxation will be more equitable on goods and services.
He also said that VAT will be applicable at every stage of the production and distribution chain, unlike the existing system.
The minister conceded that initially VAT generated some degree of apprehension and misunderstanding but said that in his interactions recently with business executives and members of the public, he found a greater public consciousness of the issue.
He also acknowledged the hard work of the staff of the Guyana Revenue Authority (GRA) in making the requisite preparations for implementing VAT.
PNCR-1G CREDIT
Mr. Winston Murray of the PNCR-1G, the lone opposition spokesman on the issue, in expressing support for the motions and the accompanying amendments, said his party should be given credit for the amendments dealing with zero rated items, as it had raised concerns at the level of the Parliamentary Select Committee.
However, he identified areas of concern which his party felt should be addressed.
One area, he said, was the matter of split peas being zero rated, while black eye peas are not exempted from VAT.
The Finance Minister, in his response, explained that under the current system split peas are zero rated as the legislation merely preserves this status, while black eye peas presently attract a 30% consumption tax; but with the implementation of VAT, taxation will be reduced because the item will attract a 16% rate.
In addition, he said, small local producers of the item will be exempt from taxation as they will not fall in the net of VAT.
Murray pointed out too that investment agreements as contained in the legislation need to be defined because it could be subject to abuse, as any and every investor will want to push for exemption from VAT.
He noted also that there was inconsistency in the use of language with one section stating investment development agreement and felt that the word development should be removed.
With respect to the former, Singh explained that the Attorney General’s Chambers which drafted the legislation did not advise that there is need for defining the term, while with the latter he concurred with Murray and moved the necessary amendment to have the word development removed.
Murray pointed out that while the legislation provides for exemption of VAT on local building materials not containing imported inputs, concrete blocks which fall under this category contain imported cement.
The Finance Minister also agreed with Murray on this and as such moved an amendment to the legislation which stated “except concrete blocks.”
Murray also contended that the VAT rate of 16% could be reduced to at least 15% if the Travel Voucher and Premium Taxes are repealed because under VAT the tax net will be widened and therefore will compensate for the loss in revenue as a result of the repeal of these taxes.
However, Singh disagreed with Murray on this score, explaining that the issue has to be looked at holistically because several items have now been zero rated.
Another area of concern raised by Murray is a section of the legislation which deals with granting subsequent importation of capital equipment being subjected to the discretion of the minister.
Singh responded that clear guidelines will be developed with respect to this issue and on the contrary it will not be left to the minister to decide on a case by case basis.