Will VAT lead to higher taxes and prices?
The VAT Corner
Stabroek News
January 16, 2007
Dear Editor,
I can't say Happy New Year (too much pressure shopping).
When is comes to VAT it is clear that this tax was implemented by Government with the express purpose of collecting more money (revenue) from the Guyanese people.
For those of you who are not too aware of the way tax was paid before 2007 look at the following:
The way goods were sold
Imported Goods + Duty + Purchase / Consumption Tax + Added Value (profit)
Now please bear in mind that P or C Tax of 10 or 20 or 30 or even 45% was calculated on just the Imported Goods + Duty then you add your profit and sell
e.g. - Imports
(Importers & Whole Sale Dist.)
G$100,000. - Cost
G$ 20,000. - Duty (20%)
G$ 36,000. - C/Tax (30% of Cost + Duty)
G$ 25,000. - Profit (25% of Cost)
G$181,000. - Selling Price to Retailers
Retailers
G$181,000. - Cost
G$ 45,250. - Profit (25% of Cost)
G$226,250. - You & I Purchasing
(Government gains $56,000.00 - 56% of imported item value)
With VAT profit % remains the same (25%)
Imported Goods + Duty + Added Value + VAT 16%
Now look at this, we Import then add Duty then add Profit then pay VAT 16% of that
e.g. - Imports (Importers & Whole Sale Dist.)
G$100,000. - Cost
G$ 20,000. - Duty (20%)
G$ 25,000. - Profit (25% of Cost)
G$ 23,200. - VAT (16% of Cost + Duty + Profit)
G$168,200. - Selling Price to Retailers
Retailers
G$168,200. - Cost
G$ 42,050. - Profit (25% of Cost)
G$ 33,640. - VAT (16% of Cost + Profit)
G$243,890. - You & I Purchasing
(Government gains total of $76,840.00- 76.84% of imported item value)
(You & I pay $17,640.00 more - approximately 7.8% increase)
Those who like maths would realize that the Government will gain more revenue in implementing VAT. Not only does Government gain more taxes, but they still want Corporation Tax at the end of the year.
If I am to maintain my profit I have to increase my profit margin calculations to 30% to gain the same as before and at the same time it means that the Government will gain even more.
Yours faithfully,
(name and address supplied)
Editor's note
Registered persons will pay and charge VAT on purchases (input VAT) and sales (output VAT). To compute the payment to the Guyana Revenue Authority, input VAT is deducted from output VAT. The example given to show the effects of VAT is incorrect in that no credit is taken for input VAT. Using the writer's scenario, the situation under VAT should be as follows:
e.g. - Imports (Importers & Whole Sale Dist.)
G$100,000. - Cost
G$ 20,000. - Duty (20%)
G$ 25,000. - Profit (25% of Cost)
G$145,000. - Selling Price to Retailer (exclusive of VAT)
G$ 19,200. - VAT paid when goods imported (16% of Cost + Duty)
G$ 23,200. - VAT charged to Retailer (16% of Selling Price)
G$ 4,000. - VAT paid to GRA (G$23,200 less G$19,200)
Retailers
G$145,000. - Cost (exclusive of VAT)
G$ 45,250. - Profit (same as under C/tax system)
G$190,250. - Selling Price to Consumer (exclusive of VAT)
G$ 30,440. - VAT Charged to Consumer (16% of Selling Price)
G$220,690. - Selling Price to Consumer (inclusive of VAT)
G$ 23,200. - VAT paid when goods purchased
G$ 30,440. - VAT charged to Consumer
G$ 7,240. - VAT paid to GRA (G$30,440 less G$23,200)
Therefore the price would fall and the Government would gain less. The opposite is however true for items which had a lower rate of or no Consumption tax. Prices could also increase where no credit is given for previously held stocks and where persons did not previously declare and pay the proper amount of Consumption taxes.