Drop in prices not expected until April – GCCI
…mediocre implementation of VAT results in a punitive tax
Kaieteur News
January 25, 2007
President of the Georgetown Chamber of Commerce and Industry (GCCI), Capt. Gerry Gouveia says that the body supports the implementation of Value Added Tax in a holistic way but in a mediocre manner it will be a punitive tax.
He added that the GCC is worried about the rate of the new tax and is even more concerned about the end-of-year stock. Capt. Gouveia pointed out that large entities, with the exception of the food mercantile, stockpile between six and 12 months of stock, largely because of the lead time it takes to procure these stocks and because of the distance from which they are imported.
These attracted a 30 per cent consumption tax last year but the government is mandating that these be retailed at a rate devoid of the 30 per cent consumption tax plus the mark-up plus the 16 per cent VAT. Unless the businesses are prepared to operate at a loss, then all goods imported prior to January 2007 could not be sold for less than their pre-December cost.
Prices will only begin to reduce when all the end-of-year stock is depleted, which will be in the next three or four months. Only certain goods imported under the VAT system can be retailed at reduced prices. But there are those goods that once attracted a consumption tax of five per cent and in some cases ten per cent. These would now attract a 16 per cent VAT, as is the case of flour.
The GCCI reiterated that throughout the previous year, it proposed to the Guyana Revenue Authority (GRA) a collaborative effort to edify the business community.
Instead, the GRA approached the implementation of VAT exclusively which resulted in misleading information being peddled to the business community and consumers. He added that when the prices skyrocketed on January 1, the GRA turned on the business community and even prosecuted persons. It touted those businesses that failed to offer goods at a reduced rate as unscrupulous.
Gouveia said that it is the general view that the selling prices for persons not registered should not go up but he pointed out that these persons are obtaining stocks with VAT added to their price which then becomes their cost price, hence a justified rise in price. The GCCI acknowledged that business has plummeted in the country in the wake of VAT, citing that in the early part of 2006, elections caused ‘stagnant sale' to pervade and that after elections persons waited to see what would happen.
It was also mentioned that when the Finance Minister indicated that a rebate would be given for goods imported in December, wholesalers assumed that January prices would reduce so most persons refrained from major shopping, with the exception of Christmas necessities.
Mr Frank D'Abreu said that this has not been the case. Articles such as toothpaste, soap, soap powder and detergents, certain pharmaceuticals such as vitamins and supplements and certain other household articles began to cost more.
These initially came in at a consumption tax that was lower than the current VAT.
He said that at present, with the exception of New Amsterdam , business in Berbice is virtually dead. People on the Lower and Upper Corentyne are not buying wholesale articles from the importers in the city.
D'Abreu suspects that misinformation is at work since certain businessmen have reported that they have three months to dispose of the stock in hand before they begin to apply VAT.
In Georgetown the business community is now recovering. The GCCI also pointed out that of the 400-plus items that are zero-rated, 198 of these items are dormant products which are either not presently being sold or sold infrequently.
Of the 129 items that have gone up on the tax scale, only 14 are non-essentials. D'Abreu said that the upper class in society, who can afford the luxury items which previously attracted a 30 per cent consumption tax, will exact a saving that will offset their increased spending on essentials. The lower income persons who shop only essentials will be feeling the negative effects of VAT.
Regarding gasoline which is touted as zero-rated hence prices will not increase, the information made public neglects to say that transportation for such items has increased which can only result in the price of gasoline being increased.
The intention of the GCCI now is to work with the relevant entities towards a smooth implementation where VAT will work toward the benefits of the Guyanese people.
D'Abreu added that meetings were recently conducted with the GRA and the Commissioner General in the hope of working to correct the false impression that January 1 prices would have gone down.
The GCCI posited that the recent revelation in Parliament regarding the VAT amendment implies that the government recognises what the GCC has been saying and is taking into account the need to address the situation.
One executive stated that Mashramani and Cricket World Cup were scheduled to offer a golden opportunity for sales with VAT. Commodities were ordered in September and arrived in December.
These attracted the consumption tax and will now attract VAT. This is likely to impact on sales.