Basic food items, books zero-rated
By Nicosia Smith
Stabroek News
November 29, 2006
Finance Minister Ashni Singh (second from left) speaking at the press conference yesterday. From right are Clement Sealey, Simone Beckles, GRA Commissioner General Khurshid Sattaur and NCN's Martin Goolsarran.
After a barrage of criticism for not dealing speedily with VAT issues, the government yesterday announced the zero-rating of basic food items and books, the granting of tax relief for stock on hand and it warned that the most senior executive officers of a company would be liable for VAT transgressions.
These changes will necessitate an amending bill. This bill will also propose that kerosene, liquid propane gas, gasoline and diesel be added to the Exempt list and that the Excise Tax rates be adjusted accordingly. While some items will be proposed for addition to the zero-rated list, two taxes which were to be repealed namely the Travel Voucher Tax on airline tickets and the Premium Tax on foreign insurance premiums will be reinstated in the amended VAT Bill. The repealing of these taxes was heavily criticized by Chartered Accountant Christopher Ram.
Once the amendments go through only six taxes will be repealed namely the Service Tax; Hotel Accommodation Tax; Entertainment Tax; Purchase Tax; Telephone Tax and the Consumption Tax.
Rice, bread, cooking oil, sugar, milk, baby formula, split peas, onion, garlic, potatoes, fruits except apples, grapes, dates, prunes, peaches, plums and strawberries and vegetables, except olives, carrots, black eye peas, pigeon peas, chick peas, radishes, broccoli and cauliflower will be zero-rated.
This announcement was made at NCN yesterday afternoon by Finance Minister Dr. Ashni Singh, in the company of the Guyana Revenue Authority (GRA) Commissioner General Khurshid Sattaur, Deputy Commissioner General Clement Sealy and Tax Inspector Simone Beckles.
Minister Singh explained that before the government formulated the zero-rated list it had monitored closely the feedback received through active consultations and by receiving responses and reactions from stakeholders. To this end, Dr. Singh said that the relevant submissions were made to Cabinet and Cabinet has deliberated sufficiently on the submissions. The outcomes of Cabinet's deliberations are reflected in the list, said the Minister. Providers of zero-rated goods and services are required to register for VAT but will be taxed at a VAT rate of zero percent and will be able to reclaim input taxes (VAT paid during the course of their operations). Dr. Singh told Stabroek News that very soon an amended VAT Bill will be presented to Parliament and that the instructions to the Attorney General have been issued.
Extension of Zero-rating list
They were concerns that if basic food items were not zero-rated this would increase the cost of living by some 10% since food items like rice, milk, sugar, onions, garlic and potatoes were not previously taxed. These new zero-rated items along with others will join water supplied by the Guyana Water Incorporated and electricity services supplied by Guyana Power Light (the wording in the amended VAT Act will include approved commercial electricity suppliers). Apart from zero-rating basic food items, 10 other items were proposed for zero-rating.
These include: medical services, prescription and over the counter drugs; education services and materials (including books); electricity supplied by approved commercial suppliers; water and sewerage services; locally produced building materials for construction such as sand, stone, lumber; vehicles for public officers/officials and re-migrants; vehicles four years and older; computers; sport gear - subject to the requirements under the first schedule of the Customs Act; fertilizers and pesticides and small gift parcels like barrels.
Other items to be zero-rated include large capital items that take a while to be sold such as bulldozers, excavators, tractors, and heavy-duty industrial machinery which currently attract zero C-Tax.
Dr. Singh said that goods and services imported by the government under foreign-funded projects will also be zero-rated for VAT purposes. This will be done to preserve the existing treatment whereby contractors who are engaged in such projects are granted exemptions from the payment of C-Tax.
In addition, works and services purchased by the government will be zero-rated for VAT purposes.
The Minister emphasized that with the implementation of VAT: "It would be expected that some goods and services will increase in prices, while some goods and services will decrease in prices. However, overall, a net increase in the cost of living is not expected." Locally grown foods come January are also not likely to increase with the zero-rating of fertilizers. Book stores strongly lobbied for books to be zero-rated since books were already costly and retailers also complained that finding the 16% VAT upon importation would severely impact their business because the books took a while to sell. Imposing a 16% VAT on computers did not go down well also since computers are already expensive and the move would have run counter to President Bharrat Jagdeo's plans to increase computer literacy in the country. The thought of having to pay 16% VAT on painkillers like Advil was yet again unacceptable to many. And without lumber being zero-rated persons would have found themselves paying taxes on coffins, a product previously not taxed.
Extension of Exempt Supplies
Schedule 11 of the current Excise Tax which includes the exempt supplies of education services, medical services - minus non-prescription drugs - and financial services will be widened to include gasoline, diesel and kerosene along with the supply/sale of locally mined raw gold and diamonds.
Although gasoline, diesel and kerosene are not to be subjected to VAT they will still be subject to Excise taxes and those rates are to be adjusted accordingly. Without the exemption gasoline would have been subject to 16% VAT and a 25% Excise Tax, while both kerosene and diesel would have also been subject to 16% VAT and 3% Excise Tax.
The gold mining sector is likely to be happy over its exempt status although the industry will not be able to reclaim input taxes since it is not required to register. Exempt goods and services, are goods and services that are outside the scope of the tax, and not subject to tax. Stakeholders in the gold mining industry had raised concern about timely refunds and the submitting of returns since gold mining operations are located deep in the interior.
For retailers who sell both exempt and other items, if the turnover of the non-exempt items is $10M and over they are required register. This would apply to gas stations which sell lubricants and other items. In addition, under the amended VAT Act specified state agencies, including those that perform regulatory functions, will not be required to register for VAT; these will be listed in a schedule.
Since VAT registration began on October 1, the Guyana Revenue Authority said yesterday that over 500 businesses have successfully registered. The Minister explained that the move to have businesses registered by December 15 to benefit from relief for stock on hand is not specifically geared toward pushing the registration process. The GRA two weeks ago had announced that it was targeting 2500 businesses but expects far more businesses to become registered.
Stock on Hand
But benefiting from relief for stock in hand will not be realized if businesses do not satisfy certain requirements.
"Specifically, businesses which have been registered for VAT before the 15th December and which have stock that they have imported during the month of December and still on hand at the end of December will be entitled to claim the consumption tax, limited to the VAT rate, paid on those imports - if applicable, as input tax credit," said the Minister.
Stock on hand was a major concern for businesses since without any VAT relief for these items goods that would have already paid C-Tax would still be hit by VAT.
Minister Singh noted that the "government wishes to make explicitly clear that the excise tax on motor vehicles will be set at such a level to ensure that there is no increase in the tax applied." There were concerns in some quarters that when the VAT and the Excise Tax are applied the cost of a motor vehicle showed an increase.
Incentive Regimes
The Finance Minister outlined that businesses that have entered into new investment development agreements with the government may benefit from special treatment on their inputs as reflected in their respective agreements. The existing investment development agreements would be restructured to grant appropriate relief.
Exporters who will pay input VAT on imports but will not collect output VAT (VAT collected or collectible) because they are engaged in exporting at least 50% of their products will be granted relief from the payment of VAT on goods which are being imported for manufacturing and processing purposes, and are subsequently exported.
The Minister stated that the effect of this would be that the businesses will not pay VAT on imports, and the issue of waiting for a long period to obtain a refund of the VAT paid on imports will not arise. "The government is convinced that these measures are necessary and appropriate in the context of its poverty alleviation policy agenda, and the imperative of ensuring high quality affordable social services in order to achieve the Millennium Development Goals." Singh warned that the government was also serious about compliance at the highest level and as a result the laws would be amended to "ensure that the most senior executive officers of the company would be held responsible if their business fails to register for VAT" and comply with the act.