VAT, Excise Tax way above projection
-consumers feeling the squeeze
By Nicosia Smith
Stabroek News
May 11, 2007
Consumers countrywide continue to face rising prices as a result of the Value Added Tax (VAT), while the government has raked in revenue 44.14% or $2.3B above its projection for VAT and Excise Tax (ET) in the first quarter.
According to information from a Guyana Revenue Authority (GRA) document obtained by Stabroek News, the approved budget for VAT and ET for January was $1.245B, for February $1.792B and March $2.053B, but the actual collections were $1.251B, $2.658B and $3.429B respectively. Thus, the approved budget amounted to $5.091B and the total collection was $7.339B. Of the approximately 2,100 VAT registrants in January and February some 80% of them filed returns on time and 75% in March.
Stabroek News yesterday showed the figures to GRA Commissioner General Khurshid Sattaur in the hope of gaining a comment, but the commissioner said he had no comment on the figures. It is not clear when the government was planning to release the figures. Finance Minister Dr Ashni Singh was also shown the figures but he also did not offer a comment.
Last year the GRA had noted that 2,500 businesses were targeted for registration and this year the GRA said it has discovered another 1,000 businesses that should have registered under VAT. Businesses also face stiff penalties for not remitting the tax and for not registering to charge the tax. Had all those who were eligible and who registered remitted VAT the collection would have been far higher. The above projection collection will pose the question whether the government should not slash the 16% across-the-board rate.
Not revenue neutral
The PNCR-1G and others last year had disputed the government's claims that VAT was revenue neutral and had asked for the standard VAT rate to be lowered to 15% from 16%.
PNCR-IG Parliamentarian Winston Murray, at a VAT seminar on November 22, had challenged the government's claim of the revenue neutrality of VAT, arguing that with VAT, the government was expected to gain $20.1B under the real Gross Domestic Product (GDP) [the official GDP was said to be understated by 40%] at the macro level.
In comparison, the government had said it would gain $16.9B with VAT under the official GDP estimates (the eight taxes that were scheduled to be repealed brought in $16.4B). The government then reinstated the Premium Tax and the Travel Voucher Tax, repealing only six taxes: service, hotel accommodation, entertainment, purchase, telephone and consumption.
In this year's $100B budget the government announced that its revenue from VAT would be approximately $25B, already an increase from the $16.4B previously gained under the eight taxes. If revenue collections continue to increase as the February and March collections have shown, the figure budgeted for the VAT and ET for this year can far outstrip this.
On November 28 last year, Finance Minister Dr Singh, speaking on whether or not VAT would increase the cost of living, noted that the government "has always maintained that it will continue to monitor and study how VAT will affect consumers and the cost of living and take appropriate corrective action."
Apart from VAT and ET, the GRA's revenue collection has increased at the departments of Internal Revenue and at the Customs and Trade Administration (CTA). For the same period, internal revenue collected was $7.83B, which was 6.88% more than the projection of $7.33B and at the CTA, revenue collected was $2.73B, which was 16.77% greater than the projected $2.34B.
According to the document, for the first quarter, the total revenue collection was $17.9B, approximately 21.29% more than the projected $14.76B.
The minister and the GRA last year and this year maintained that VAT was revenue neutral and rather than increase the cost of living it would lower it. However, the cries from consumers at the markets and from businesses across the country do not support this.
"It would be expected that some goods and services will increase in prices, while some goods and services will decrease in prices. Overall a net increase in the cost of living is not expected," Dr Singh had said on November 28, while announcing the first ten basic food items that were zero-rated. On January 27, a further 40 items were zero-rated. Had these not been zero-rated, the originally projected VAT and ET collection would have been dwarfed.
Luxuries
A number of items that faced taxation at a rate below 16% are now attracting the standard VAT rate and this is also contributing to price increases as well.
A visit to the Stabroek and Bourda municipal markets yesterday revealed that prices for basic food items have in some cases doubled; even those that are zero-rated.
Stabroek Market stall owner Michael Churaman, who is not registered to charge VAT, told this newspaper that the prices for the imported fruit juices and energy drinks, which he termed "luxuries", have increased by thousands of dollars, for wholesale quantities.
Churaman said that in December, he paid $16,500 wholesale for a 55-pound bag of milk powder; it now costs $26,000. As a result, he retails one pound of milk for $480, up from the $200-plus a few months back. Milk is zero rated under VAT.
Another zero rated item, cooking oil has also increased. Last year, this Stabroek Market stall retailed an approximately one-litre bottle of cooking oil for $220; it now retails for $300 or $340 depending on the brand. Rice, flour and sugar, Churaman said, are stable, but he says his profits have decreased even though sales have remained steady.
Lloyd Jackson, of Jackson's Grocery store also at Stabroek Market, said if the government claims to be for the working class "why are they allowing the prices of staple foods to run away [increase]?"
Jackson said he was not retailing milk because of the increased cost. He confirmed that a 55-pound bag of milk powder, which was $16,600 wholesale as recent as January now costs more than $25,000. He believes the government should have some price control for basic food items like milk.
In the case of cooking oil, being a small grocer he bought at the wholesale price of $240 for an approximately one-litre bottle and retailed that for $280. Now it costs $320 wholesale and he retails it for $360.
This stall owner is also coping with increased stall rental fees from $2,600 to $8,000 per month, and complains that sales have dropped tremendously. Other basic items that have increased in price at this grocer are grains to make porridge, chowmein, flour, tomato paste and margarine among other items. Jackson sums up, "is everything raise."
At a VAT registered stall in the Stabroek Market, similar concerns were raised.
Although the stall owner declined to state his name, he said, "everything increase."
The stallholder told this newspaper that full cream pre-packaged milk, like Fernleaf, Kerry Gold and others are now being retailed for the same price as the loose milk from the 55-pound bags, which he packages himself. These pre-packaged milks were sold at $460 per sack; they now retail at $500/wholesale $480. Cooking oil prices have also increased at this stall with a five-gallon bottle being sold for $5,800; it was previously $4,500.
At Bourda Market, Rajkumar Deonauth, who co-owns a VAT-registered stall said sales have dropped significantly and shoppers walk away when they view the VAT certificate and shop at unregistered stalls or from hucksters.
Deonauth said it seemed that the prices were increasing each week, and at times, he would bear the fluctuating price increases to maintain stable prices for his consumers. Onions and potatoes were among the items that fluctuated and oil and milk prices were said to be increasing steadily, even though these are zero-rated. Deonauth said "it is like you are not doing nothing."
Another Bourda stall, which is not VAT registered was also feeling the negative impact of VAT.
Raimony Roopna lamented that consumers are buying smaller quantities and seem to be buying items that will suffice for shorter periods instead of the bulk shopping previously done. She was not optimistic that prices will drop from their current highs. This stall owner was not selling powdered milk; she said it was too expensive.
Roopna had concentrated tinned milk on her shelves and even these were selling for at least $10 above their previous prices.