THE BIG STICK WILL NOT WORK
Peeping Tom
Kaieteur News
January 5, 2007
The job of the Guyana Revenue Authority at this the early stages of the implementation of the Valued Added Tax (VAT) should not be to try to embarrass businesses. It should instead continue to educate the public and the business community since a great deal of the confusion is ensuing because people are not fully aware of how they should treat this new system.
Using the big stick will only further alienate sections of the business community. While it may be true that there are instances where unscrupulous businesses have abused the system, the GRA should not panic and in the process seem to bring businesses into public disrepute; the same businesses that are needed to ensure that VAT works.
The GRA however seems to be adopting a big stick approach to the problem by announcing that it will be taking three businesses to court for alleged infractions.
We have been told for example that in one case the GRA is investigating a case whereby VAT was billed for a purchase made on Saturday, December 30, 2006, but which was reflected on a bill dated January 2, 2007.
I cannot understand why the GRA is upset at this matter. If they understood accounting practices, they would accept the fact that on the last working day of each year, it is normal for businesses to close off their accounts at a particular time so that these can be prepared for the processing of the end-of-year financial statements.
In many instances, businesses close their accounts on Christmas Eve and use the period from Boxing Day right through to Old Year's Day to do things such as stocktaking and reconciliation of their accounts. Any purchases made, for example, to persons with whom the businesses may have a business arrangement transaction are usually treated as sales for the next year.
I do not know the full facts about the case that the GRA is investigating but it is quite possible, and legitimate, for a business that would have closed off its accounts to treat additional sales made afterwards, but on the same day to be treated as sales for the new accounting period, in which case, the business would be obligated to comply with any new tax laws governing such sales.
I am not sure within the government exactly when the accounts for the financial year 2006 were closed, but I would sure love to know how the government treats payments that it has to make for 2007 but which have to be paid before its accounts are closed.
Why does the GRA feel that a business enterprise would intentionally seek to charge VAT one day before it is legally due to be charged. And did the GRA establish that the monies collected would not have been remitted to their coffers.
Surely, if the GRA is saying that an illegality has taken place, it must establish not only that the tax was collected but that it was not going to be transferred.
In another instance, we are told that one supermarket is going to be charged for some other infraction, and in another instance we are told that another supermarket is refunding to its customers VAT inadvertently charged on zero-rated items. We have not been told, however, whether that supermarket is going also to be charged.
Then in yet another case we are being told that charges are going to be laid against a business not authorized to collect the VAT. I am wondering why the GRA is rushing to make these public statements when it needs to first do its investigation, and for example, find out whether the person collecting the VAT in the first place was doing so out of a misunderstanding of the process, or whether that person was simply profiteering from the VAT.
The GRA and the government must admit to the fact that the country has not been adequately prepared for the implementation of VAT.
I have for example heard about cases in which some businesses have said that while they registered they are yet to receive their VAT certificates. This means that they cannot collect the taxes that they ought to be collecting.
Since they would have met the legal requirement making it compulsory for them to be registered, but cannot give effect to VAT because they do not have their certificates, who is going to be charged for these businesses not receiving their certificates.
Other issues have arisen that need addressing. One of which is how do retailers who do not do their own importation deal with old stock. Since they did not import the items, they cannot claim a tax credit since they would have purchased the item from a wholesaler who would benefit from the tax credit for stock imported in December and sold by March of next year.
But what happens to the retailer purchasing large stocks from this wholesaler in December, on prices which reflect the consumption taxes paid by the wholesaler. The retailer who is registered for VAT has no other option but to simply charge the 16% on his existing stock since I doubt very much if after the wholesaler would have collected his tax credit he would go around to his customers and refund them their proportionate share.
I will in my Sunday column point out the grave failings of the GRA and the government to adequately prepare the nation for VAT. In the meantime, I urge the GRA and the government to work with businesses to ensure that they comply with the law and that they have an understanding of how to cost their items in light of the new taxes. The Big Stick approach will not work