VAT
Editorial
Stabroek News
January 8, 2007
Having crossed into the new year and VAT land no one was expecting that the experience was going to be smooth. But it shouldn't have been this confusing and bewildering to so many. There is a certain responsibility on each and every citizen to acquaint his or herself with the terms of national tax laws particularly if they are directly affected by them. The attitude to this tax varied widely. Some businesses took it seriously and commissioned studies while others sat back and watched and waited. Given the strangeness of the tax to the public and the need to know a host of things such as the difference between zero-rated and exempt goods and the invoicing requirements it is easy to understand why so many members of the public have been completely flummoxed by it and are at their wits end to understand how overnight they are eyeball to eyeball with a virtual 16% cost of living increase.
Even if the average citizen had taken the time to try to learn as much about it so that they could knowledgeably monitor their business transactions and understand why some prices had gone up and why some should have come down, they weren't given much help. Aside from the sterling efforts of Ram and McRae the GRA's campaign was tepid and did not ignite the type of interest and awakening that it should have. The media remained mostly on the sidelines perhaps not understanding the system as well as it should.
In the light of the muddled start to VAT, the GRA has to be careful about the manner in which it proceeds. Faced with widespread confusion last week, the GRA drew the stick and waved it but there was also ample of evidence of carrots being shared out. Which is why Friday's announcement of summonses against two businesses for alleged violations of the invoicing requirements should raise eyebrows. The GRA must not be seen to be arbitrarily pursuing businesses. One would expect that charges would be levelled against those who deliberately set out to trick the system through some elaborately laid out plan and had not heeded warnings to desist. On the face of it, the explanations proffered by the companies in question seem to fall well within the category of the failings of many other businesses over the last week. It must mean therefore that these two companies were selected to be made examples so that the rest would fall in line. There is an inherent danger in this. It should also be borne in mind that the GRA had said whether wisely or unwisely that businesses would not be penalized for what were thought to be mistakes.
Unfortunately, charges against two or three companies will not redress the damage done last week to the pysche of the ordinary consumer who has been skewered by a 16% price hike on a range of goods and services. This was what the GRA had been warned about and this is what it seemed ill-prepared to respond to. The chaos that reigned last week has raised serious questions about what the GRA, its VAT unit and the Ministry of Commerce would be able to do to reverse the problem. The applicable maxim is once prices go up they don't come down, unless a critical mass of businesses quickly begin doing things the right way and the market then determines prices. But at this point the market remains segmented and headed in different directions: those who have recalculated their costs to cater for abolished taxes and added 16%, those who have maintained their prices without batting an eyelid and added 16%, those who have seized the opportunity to increase prices and then add 16%, those who have not changed their prices and not added 16% in the hope of harvesting higher sales until they are forced to apply VAT and those who offer a choice of VAT or no VAT.
Legitimate concerns remain over the December stock restriction for claiming credit as many businesses have varying cycles for stock turnover. Some businesses were making it clear that until their fully paid up c-tax stock was exhausted they would not be removing it from their price calculations.
In a country where law enforcement is so lax and an entire police force has huge problems trying to maintain order, it defies logic that the GRA could expect January 1 to roll around and a nation steeped in a history of underground economic activity would simply stand at attention and march in unison. With more elaborate remissions of taxes now required of registrants and no control over the printing of invoices etc, the GRA faces a testing period. And this is only Georgetown. What of Lethem and the burgeoning trade with Brazil and the Corentyne and Moruca etc, how will they fare in this new environment? What of cheaters who will control an entire line of smuggled commodities without charging each other VAT and engaging in off-book transactions? How will legitimate businesses charging the tax fairly make out against this competition?
In light of the firm assurances which have been given to the public by both the President and the GRA that VAT and its compensatory measures should not result in a higher cost of living, it behoves the government to undertake at the earliest opportunity a survey of pre and post-VAT prices to determine if properly applied, VAT has resulted in a significant cost of living increase. If this is found to be the case serious consideration would have to be given to adjusting the VAT rate or providing tax relief from another direction to dampen inflationary pressures.