VAT's birthing pains
Editorial
Guyana Chronicle
January 5, 2007
WHEREVER it has been introduced, VAT has always been met with controversy – and some of that controversy very often does not end.
The current hiccups with the introduction of VAT here were not unexpected and certain questions will linger on concerning VAT.
For example, will the costs of goods and services be cheaper at those smaller companies which legally are not required to register for VAT?
How does one determine – and at what stage of the collection process – whether a piece of cloth is destined for a school uniform or a casual skirt?
Outside of the present problems, there are also other issues which will conceivably arise sooner or later down the line.
The Information and Communications Technology (ICT) revolution may be something on the distant horizon, for example, but technology has a way of shortening such distances drastically.
E-commerce will force a revision in the system. How do we, for example, encourage the growth of the ICT sector but still institute a taxation regime which garners adequate revenue from the industry?
How do we deal with the inevitable factor of e-commerce in applying VAT?
Will downloadable products or online services be brought into a system developed mainly for traditionally manufactured physical products?
Or are we going to omit this sector's inclusion in the current VAT legislation to encourage ICT investment like other developing territories have done?
As the situation currently stands, it is clear that much more public education needs to be done at several levels about VAT.
While a greater part of the PR effort has been focused on what the tax is intended to do, the real information needed – and this in generous amounts – is how exactly the tax works.
Even so, it can be argued that at the end of the day people will be judging VAT on how much more they are spending at the end of the month.
If it is that their basic expenses are less, then just maybe the tax is all that the Guyana Revenue Authority has made it out to be, and hence a good thing.
If they end up spending more than they have been accustomed to, then the tax will be seen in a different light.
The burden is therefore then placed on the authorities to show that the revenue for VAT is being collected in a fair and equitable manner, and said revenue is being pumped into projects which benefit the people who the higher prices will most have an impact upon.
As with the application of any law in Guyana, the success or failure of VAT is going to depend on the systems in place for enforcement.
The complexity of the VAT system of taxation, the inherent weaknesses within the present revenue collection, and most importantly, the ignorance of local consumers as well as business people, of the mechanics of the system, create a system where prolonged, systematic abuse is highly probable – to one degree or the other. The decision to charge three companies for infringements related to VAT is therefore encouraging.
The present problems with VAT could fairly be attributed to birthing pains for this new system of taxation.
That said, it is in the interest of everyone, that this particular baby grows up pretty fast.