Getting public support for VAT
Editorial
Kaieteur News
December 9, 2006
As the government and the Guyana Revenue Authority (GRA) seek to implement the new Value Added Tax (VAT), they should keep in mind the old adage ‘without the support of the people nothing can succeed, but with the support of the people nothing can fail.'
They should keep this saying in mind because it is quite clear that, with only a few weeks remaining before the scheduled introduction of VAT, there is still widespread apprehension and misunderstanding of the new tax. This indicates that government and GRA cannot implement VAT smoothly and successfully unless they do a lot more to raise the level of public understanding and acceptance to convince everyone that this change is relevant and desirable.
As it stands now, there is much public concern that VAT will erode even further workers already shrinking disposable income. Many wage earners find Guyana's level of income tax uncomfortably high; some experts say it is the highest in the Caribbean region. With income tax chopping their disposable income from the earnings end, many persons are deeply disturbed at the prospect of VAT hacking their disposable income from the expenditure end.
From all indications, the business community is also very wary of the way VAT would affect their operations. Under the VAT umbrella, the GRA has set a net annual income threshold for registration of businesses that covers all major enterprises in Guyana. Understandably, businesspersons are concerned about how VAT would influence the elasticity of demand for their goods and services. Also, there is some doubt about how to collect VAT and remit it to GRA, as well as uncertainty about time frames and penalties.
It is noteworthy that GRA has embarked on a multi-media public information campaign to sensitise the public about VAT. However, it is highly questionable whether this campaign is as effective as it should be in getting the public to support VAT. One criticism is that it focuses too much on the information that VAT will replace eight other taxes. It implies that replacing eight taxes with one tax would alleviate the effects of VAT. It would be useful to enumerate exactly what the savings and benefits would be.
The whole scenario regarding the implementation of VAT in Guyana seems to set in opposition to each other the direct benefits citizens would get from having more disposable income and the indirect benefits they would get from government raising more revenue and doing more public works. To get the public's full support for VAT, its proponents have to set out clearly for the public all the benefits citizens would get from new development works based on increased government spending from an expanded government revenue base.
Under the VAT umbrella, it appears that registered businesses would have to operate under conditions that facilitate far more accountability to GRA. The Inland Revenue Authority would be in a position to get more information than ever before on the financial activities of businesses in Guyana and this should make corporate tax evasion much more difficult. However, businesses that are aware of this and do not want their financial activities to fall under the close scrutiny of GRA might seek to thwart the implementation of VAT. To what extent can GRA avert this and enforce compliance?
It is interesting that the implementation of VAT comes at a time when a 2006 report from Transparency International (TI) ranks Guyana among countries where corruption is rampant. According to a TI index, Guyana ranks 2.5 out of 10 and is the 121 st out of 163 countries in terms of the incidence and effects of corruption. This is definitely not the ideal background for implementing a new tax that is likely to be unpopular. It means that government and the GRA have to be scrupulously careful that the mechanisms for collecting VAT are above board with appropriate checks and balances.
Make no mistake; in Guyana's current socio-economic environment VAT is a ‘hard sell' tax. If the implementers do not prepare the public appropriately, the implementation will be unnecessarily rocky.