By Gitanjali Singh
Stabroek News
June 20, 2001

The absence of a hike in the income tax threshold has been singled out by a cross-section of interests as a serious deficiency in the 2001 budget.

Director of the Private Sector Commission, David Yankana, President of the Guyana Manufacturers' Association (GMA), Norman McLean, businesswoman, June Mendes of Farfan and Mendes as well as the National Association of Agricultural, Commercial and Industrial Employees (NAACIE), have come out against this omission.

"NAACIE is terribly disappointed that the government's 2001 budget has failed to make provision for an increase in the income tax threshold," a statement from the union said yesterday, noting that this is the third successive year that the threshold has remained at $18,000 per month.

The statement said that NAACIE and the Guyana Agricultural and General Workers Union (GAWU) had written to Finance Minister, Saisnarine Kowlessar, recommending that the tax threshold be increased to $28,000 per month and that allowances be reintroduced to provide for children under 18 years of age and dependents. They also asked that mortgage/loan repayments and university fees be exempt from income tax.

"The income tax structure in its current form is highly oppressive and it is the ordinary working people that are being burdened," NAACIE asserted.

NAACIE also feels that the government has to look at other means of alleviating the hardship that ordinary working class people face and argued that this would go a far way to support the notion of poverty reduction which is now gaining momentum in Guyana.

"NAACIE feels that it is not too late for the government to recommit this matter for serious consideration. It is our view that an increase in the threshold could be accommodated during the course of the debate on the budget in the National Assembly," the statement added.

And in an invited comment on the 2001 budget, Yankana said he was "very disappointed" that there was no lifting of the income tax threshold as was supported by all of the private sector organisations.

"Given that people are leaving (the country), one would have looked forward to a higher take home pay as a budget measure," Yankana asserted.

Yankana feels that a scientific method could be used to allow persons to enjoy a higher take home pay. He said that the non-taxable income threshold should be fixed at around twice the per capita income and then the progressive tax structure which increases incrementally should be applied.

"The government could have given some relief to the small man and increase the income tax threshold. I don't believe that would have made any dent in the government revenue. This would have been spent in the system and would have had its own multiplier effect," McLean also opined.

Mendes said she was very disappointed in the budget and cited the absence of an increase in the non-taxable threshold as one of the reasons.

McLean described the budget as not containing any dramatic positions but found it to be a stabilising one as it continues the programme the government embarked on last year.

However, McLean and Yankana both shared the view that the government has to embrace tax reform measures.

McLean said that the government has to embrace bold and imaginative measures to attract big investments to Guyana. He noted that the consumption tax rate is very attractive in Trinidad and Guyana needs to move in this direction.

"The government has to address the issue of tax reform if it wants to promote investment. It has to be bold in the hope that the decision it takes on tax reform would yield the growth required and boost revenue generation." McLean asserted.

The GMA has proposed that the government institute a flat rate of 10% as its consumption tax as compared to the graduated rate of 10% to 50% with 35% as the most common rate. A study has been done on the impact of lowering the c-tax to 10% and its effect on government revenues and it has shown that it will be negative.

However, McLean argues that even if the effect would be negative, the government should implement a lowered rate as it would generate more investments, jobs and boost revenue generation in the long run.

Four major companies are responsible for most of the revenue from consumption tax: Banks DIH, Demerara Distillers Limited, Continental Industries and the Beharry Group. However, McLean said that the c-tax on liquor need not be reduced and a special regime could govern this.

He indicated that whilst the government would continue to worry about the revenue effects of the lowered rate, businesses are moving to areas where they are better compensated for their investments. He cited Colgate Palmolive and Demerara Tobacco Company which have both relocated to Trinidad because of the lowered consumption tax rate and lower fuel prices.

McLean also mentioned the red tape and bureaucracy which have not been dealt with in the budget, citing the punitive measures if tax returns are not filed on time.

He argues that apart from the government seeking big investments aggressively, Guyanese have to adopt a buy local strategy to boost local investment, jobs, earnings etc.

McLean believes that not much more could have been done in the budget apart from raising the income tax threshold to between $22, 000 and $25,000 per month.

Yankana sees the budget as a public sector spending exercise aimed at achieving growth of 2.8% this year and as not making any attempt to restructure the economy or deal with tax reform.

While he did not envy Kowlessar the task of presenting a budget this year, coming at mid-year and on the heels of six months in the year which did not inspire much confidence, Yankana said that the private sector consultations were not looked at with any kind of support.

He noted that much consultation took place within the private sector before a meeting with Kowlessar on the budget preparation but the issues raised were not covered in his presentation.

"This puts in jeopardy the usefulness of the consultation exercises as we can expect to see reservations in future on private sector entities participating in consultation processes," Yankana stated.

Yankana also said that he expected to have seen the budget prepared with some reference to the National Development Strategy (NDS), a link which could have easily been picked up. But this was lacking.

The PSC official noted that the budget, however, has to be looked at in the context of a wider development programme evolving in terms of what the NDS envisions.

"The budget is essentially a public spending exercise to achieve growth in the next six months (and) assumes that private investment would be very tardy," Yankana said.

Mendes also noted the need for a reduction in corporate and consumption taxes and found the budget lacking in specifics. She felt that many issues which affect living in Guyana were not addressed in the budget.