Too early to draw conclusions on VAT
- Finance Minister
Guyana Chronicle
May 13, 2007
FAR too little time has elapsed for any clear conclusions to be drawn with respect to the revenue impact of the Value Added Tax (VAT), which came into operation in January this year, according to Finance Minister, Dr. Ashni Singh.
He said that given the nature of the VAT system, which involves a cycle of different transactions including payment of tax, claiming of input credit, and payment of refunds, the observation period that would be required before reliable conclusions could be drawn is much longer than a mere three or four months.
Singh argued that, in many large sectors, business cycles are considerably longer and, since VAT collections are affected by these cycles, sufficient time has to be allowed for data to be collected over a longer period of observation before adequate analysis can be conducted and firm conclusions reached.
According to the Government Information Agency (GINA), Singh said that in addition, in conducting such analysis, a number of factors would have to be taken into account. These include the level of economic activity in the observation period, which would obviously impact on revenue collection, and unusual or one-off occurrences or activities whose revenue impact would be difficult to project in advance, such as Cricket World Cup.
In addition, the minister pointed out that VAT is, by design, a more difficult tax to evade.
Consequently, in analysing the revenue impact of VAT, the level of evasion of taxes this year relative to last year would have to be taken into account, he said.
GINA said that Singh stated that an increase in tax collection after VAT is implemented might point to the possibility that VAT has been successful in reducing tax evasion.
The agency said he offered these comments in response to reports in other sections of the media regarding revenue collection in the first quarter of this year, and described these reports as unfortunately hasty and very curiously timed to coincide with reports on the outcome of Thursday’s debate in the National Assembly in which the government defeated a motion on VAT by the main Opposition People’s National Congress Reform (PNCR).
During that debate, GINA said, a number of members from both sides of the House acknowledged that elements of the motion proposed by the Leader of the Opposition were impracticable and overtaken by time.
In response to reports of price increases caused by VAT, Singh said it is completely illogical to attribute to VAT some of the price increases being reported.
For example, he argued, a number of categories of goods such as basic food items like fruits, vegetables, milk and meat are zero-rated for VAT and, therefore, increases in prices in these commodities would have to be attributed to factors other than VAT.
In addition, he pointed out that where price increases are observed to be in excess of 16 per cent, these could certainly not be as a result of VAT, given that VAT is charged at either 16 or zero per cent.
GINA said he cited factors such as developments on the world market for certain commodities, demand and supply, and businesses not passing on the benefits of VAT to their customers, as potential causes for some of the price increases that are being observed.
In any event, he pointed out that prices for a number of items have reduced.
In addition, in Thursday’s debate in Parliament, it was pointed out that an objective examination of the Consumer Price Index for the first three months of the year clearly rejects the suggestion that VAT has caused a large increase in the cost of living.
Nevertheless, the Finance Minister stated that the government will continue to monitor the situation through the Guyana Revenue Authority and the Consumers Affairs Division in the Ministry of Tourism, Industry and Commerce.
GINA said he also urged that consumers be more vigilant when purchasing items and report when persons charge exorbitant amounts.