After two amendments, the Value Added Tax (VAT) Order 2006, which allows for the zero-rating of additional items and exemptions not previously stated in the VAT Act 2005 was passed last evening in the National Assembly.

Parliament also confirmed the VAT Transitional Regulation to allow for relief for stock on hand; VAT (Amendment) Regulations and the Excise Tax (Amendment) Regulations. The historic tax is to be in place from January 1, 2007.

The amendments to the VAT order, included as was previously announced by Finance Minister Dr Ashni Singh last month, the zero-rating of ten basic food items including rice, sugar and milk; educational services and materials like printed books and newspapers; over-the-counter drugs; liquid propane gas or cooking gas and the reinstating of two taxes.

Amendments to the Excise Tax now provide for gasoline and diesel to be excise taxed at 50%; both are also VAT exempt. Before the amendment, gasoline would have attracted 25% Excise Tax and 16% VAT, (a total of 41% in taxes). Diesel would have faced 3% Excise Tax and 16% VAT, a total of 19% in taxes. These amendments were unchallenged.

Dr Singh had indicated last month that these amendments would be brought before Parliament. However, they were not received without reservations leading to two amendments following concerns raised by PNCR-1G Member of Parliament Winston Murray.

Singh reiterated during his presentation of the order that it was based on "valuable feedback" and contributions received from various stakeholders.

But although the VAT Order was welcomed and supported by the PNCR-1G, Murray queried why the standard VAT rate of 16% could not be reduced in the light of the reinstating of the Premium and the Travel Voucher taxes. He also pointed to Schedule 1 that outlines zero-rating and asked for an explanation and qualification of the meaning of the terms 'investment agreement' and 'investment development agreement'. Murray also wanted guidelines to be put in place that would determine which agreements would benefit.

With regard to the Premium and Travel Voucher taxes Murray posited that according to information on revenues these two taxes would have earned $800M and with their reinstating that revenue would be recouped. He noted that since the government would have budgeted to recoup this $800M at the 16% VAT rate, it could drop the rate to 15% or lower.

Singh, in his response, said Murray should not look at the reinstating of the taxes in isolation since the government was zero-rating items that would have been budgeted to gain an income and in fact the government would lose revenues as a result of these adjustments.

But Murray noted that a number of the items being zero-rated, like food items, did not previously attract consumption tax (c-tax).

Black-eye peas

Murray also asked why split peas was being zero rated and not black-eye peas. During this discussion members saw it fit to heckle about the varieties of cook-up rice they most enjoyed. The PNCR-1G MP said several members of the public had enquired from him as to why black-eye peas was not being zero-rated and even he felt it should be zero rated.

Singh responded that black-eye peas will now be cheaper since it had been subject to a 30% c-tax and would now be subject to a 16% VAT.

Murray also made the point that a large portion of the small farmers would not have fallen into that 30% c-tax bracket. Rebutting, the minister explained that since many small farmers would likely fall below the VAT registration threshold of $10M, the tax was not likely to have an impact on them.

The minister conceded that the use of 'investment agreement' and then 'investment development agreement' needed to be clarified, and decided that this should be amended to read 'investment agreement' deleting 'development'. The minister said guidelines would be put in place as to which agreements would benefit.

The Finance Minister was also asked to consider revising the wording of another statement under Schedule 1 of the order being proposed, leading to the second amendment.

Cement

The wording under (bb) in the order reads: "a supply of locally produced sand, stone, concrete blocks, lumber or similar materials of a type and quality used for construction, but not including items containing imported raw materials."

Murray pointed out that the wording must be changed to make an exception for concrete blocks which are to benefit from zero rating since the cement used to make them is in fact an imported item. Singh conceded and decided that this should be amended to make an exception for local concrete blocks, since their main component, cement, is not made in Guyana.

There was also confirmation of an amendment to the VAT Act Regulations 10 that spoke of the printing and controlling of VAT invoices. The minister said that based on feedback from the private sector and particularly from those using computerized invoices, centralized printing and numbering of VAT invoices would be onerous. He said this would have also meant that printers would have had to be authorized and registrants would have only been allowed to use those invoices. The argument made, he said, was compelling. The minister however noted that it was a requirement in the VAT Act that the invoices be numbered. The amendments to this regulation were supported without objections from the floor.

In a letter to the editor published in yesterday's Stabroek News Chartered Accountant Christopher Ram disagreed strongly with the government's position to remove centralized control of the invoices. "The invoice is one of the most important control features of VAT and is also the easiest way for the revenue of the country to be defrauded.

The VAT invoice is crucial not only for purposes of charging VAT on sales but also for claiming input VAT credit," he said in the letter.

With regard to the confirmation of the VAT Transitional Regulation to allow for relief of stock on hand, Murray raised the concern that some felt that three months into 2007 was too short. However, he said he did not have the evidence to support this.

If the stock on hand will be sold by March 2007 credit can be given. He also felt that the minister should have indicated the relief for the VAT rate of 16% or for the c-tax paid, instead of saying the lower rate of the two.

Amendments to the Excise Tax, the minister said, would not give rise to an increase in the cost of vehicles. He said that if this were found to be otherwise, he would be willing to reconsider the vehicle rates. The same concessions for public officials and diplomats remain, along with concessions given to businesses.