PNCR urges rethink of VAT date
Tax `not revenue neutral as presently arranged'
Stabroeknews
November 10, 2006
The PNCR yesterday urged the government to rethink the January 1, 2007 VAT implementation date and said as presently configured the tax is not revenue neutral.
Concern was also raised by the opposition party about food items. It said in a press statement that during the Select Committee examination of the bill it had pointed out that the scenario chosen by the government, and indeed the bill that was before the Parliament, did not zero rate certain essential food items such as onions, garlic and split peas.
"The law that is on our statute books at present does not zero rate these items. Nor does the law zero rate certain educational materials and textbooks," the PNCR asserted.
The party said that when the Minister of Finance was questioned on these matters, he would only say that the government would make an announcement shortly. How-ever, the PNCR noted, there are only two months before the Act comes into operation.
In the last few weeks there has been an outpouring of sentiment against the January 1, 2007 date because it is felt that the general public and businesses are not prepared for the tax. Critics have also said that the implementing agency, the Guyana Revenue Authority, is not prepared for it and has done a poor job apprising the public of the tax. The government has said little recently about these criticisms.
The PNCR also maintained that "if the government does not zero rate the consumer goods and educational materials that currently pay no consumption tax, then it is indisputable that the prices of these commodities to consumers would increase by at least 16%."
In that light, the PNCR is calling on the government to honour what is said to be an undertaking given by its representatives in the Select Committee that the food items which were not subject to Consumption Tax now would be zero rated under the VAT regime.
Educational materials
"We also call upon the government to zero rate those educational materials which currently do not pay consumption taxes. To fail to do so would, in the case of food items, be breaching an undertaking and in the case of educational items, be an act of callous disregard for the children of the poor," the PNCR declared.
It also argued that VAT is not revenue neutral as arranged at present. "From the inception the government advertised and sold VAT to the public as a revenue neutral tax. The consultants who did an estimation of the impact of a value added tax pointed out that 'from all our simulations the net yield of the VAT and excise taxes exceeded the yield of the taxes to be replaced'", the PNCR said. Only rates of 15% and 16% were used, the party noted.
The consultants also pointed out, the release observed, that official GDP data is underestimated "and it therefore does not reflect the level of economic activity in Guyana particularly in the wholesale and retail sector. . . we therefore believe that conclusions based on the use of such data for the analysis of the impact of VAT and associated excises are likely to be inaccurate and misleading."
Notwithstanding this, the PNCR statement underscored, government in applying a VAT rate of 16% completely ignored the fact that official GDP is underestimated by at least 40%. Therefore the yield of the VAT plus excise taxes is heavily underestimated based on the use of official GDP estimates.
VAT less than 16%
The PNCR therefore believes that VAT could be less than 16% if revenue neutrality is truly the objective, the party argued.
It noted too that VAT, together with a set of excise taxes, replaces some nine existing taxes, and it is a more broadly based tax on the production of goods and services and so in principle is acceptable to the PNCR on the grounds of equity in tax burden among producers. But from the time of the introduction of the VAT bill in the National Assembly during the 8th Parliament, the PNCR had consistently raised a number of concerns, almost all of which remain unaddressed, the release said.
The party also pointed out its concerns about what is said to be an ineffective public awareness and information programme by the Guyana Revenue Authority (GRA), the treatment of stocks on hand at December 31, 2006 which would have already been subjected to one or more of the taxes now existing, and the operational date for VAT.
According to the PNCR, the public awareness and information programme seems to appeal to emotions for support of VAT, with the emphasis being put on equity and the widening of the tax base as well as on the fact that VAT is not a cascading tax.
The release noted that in the PNCR's view, what consumers need to know is exactly how the tax is to be applied, what items will be zero rated, how they could recognize and calculate exactly what amount of VAT is payable on a given item and whether this tax would be explicitly shown for any item purchased. There is certainly no provision in the law requiring this, the party pointed out.
The GRA also needs to inform consumers as to whether there is, or will be, a mechanism through which they could seek redress if they believe they may have been overcharged.
And regarding the treatment of stocks on hand, the PNCR declared that this is a matter that needs to be clarified with certainty and expeditiously. Private sector businesses are concerned that they may be in possession of stocks at December 31, 2006 on which they would have paid current taxes, the party observed. Then when January 1, 2007 comes these stocks could be subject to VAT.
"It is difficult to understand why a decision could not be forthcoming on this issue," the PNCR remarked, and then suggested that "one possible solution could be for the GRA to grant a tax credit equivalent to the current taxes paid. This credit could then be applied against VAT due."
VAT date
Questioning the operational date for VAT, the PNCR said that from all appearances many matters are not quite clear to either consumers or producers. In addition, the party said, there is doubt as to whether there are enough trained officers with the requisite knowledge of the tax itself and of its administration.
The PNCR suggested that the outlying GRA offices do not have enough, if any, officers who can deal with queries. It also raised the question of whether the administration of other taxes may suffer while personnel and financial resources are diverted to deal with VAT.
To ensure a smooth transition to VAT the party suggested that government should rethink the operational date of this tax.
"If it is truly the case that VAT is a revenue neutral tax then postponement of its application for, say, a year will not affect revenue negatively."
The PNCR also offered that it may be worth considering whether there should not be initial application of VAT on a narrow range of goods and services, with an expansion of the range over time as the kinks in administration and application are sorted out.
The party added that it is looking forward to an early response to the matters raised in this statement.
Meanwhile, the PNCR is sponsoring a VAT seminar/ symposium on November 21st in the Rupununi Room of the Tower Hotel from 4:30 pm. The party said it is inviting, among others, the Minister of Finance to address the seminar and to answer questions which participants may have. Several organizations have also been invited to send representatives and the public is invited.