Government's CT intervention will stimulate economy

Guyana Chronicle
January 19, 2003

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THE Government of Guyana has reduced the Consumption Tax (CT) on gasoline and dieseline. As a result, importers of gasolene will benefit from a 30 per cent and 20 per cent reduction on the CT on gasolene and dieseline respectively.

This new reduction of the CT besides arresting any negative effects on our economy, will serve to stimulate it. The stability in transportation costs is one of the crucial areas in the economy which had to be considered in wake of the rising fuel prices.

The effect of the Venezuelan oil crisis is being felt in Guyana, since Venezuela is Guyana’s main petroleum supplier. Guyana has had to resort to alternative sources of fuel, mainly from Trinidad and Tobago.

As a result, the local price per gallon of gasoline moved from $415 to almost $500. The new price impacted on the cost of transportation. Mini bus operators, in particular, increased their prices. The increase in fuel prices also threatened a chain reaction of increases in commodity prices and services.

Government’s timely intervention to determine the market price of fuel by implementing CT cuts has arrested the threat of a sudden rise in the cost of living and the general inflation rate.

Since the oil crisis started in late 2002, on January 9, 2003, Government announced that, " response to the recent escalation in the international market price for oil and the consequential impact this has had on various sectors of the domestic economy, has taken the decision to reduce the CT on both gasolene and diesoline".

Adding that with the decision to reduce the CT on gasoline by 30 per cent and diesoline by 20 per cent, "... Government does not expect that there will be any increase in public transportation fares or in prices of other products".

The Manufacturing and Agriculture Sector would benefit tremendously from this decision to reduce the CT.

The cost of transportation is the gateway to pricing of goods and services. It is expected that the subsequent fall in transportation cost will benefit the entire population and the economy as a whole.

The majority of fuel wholesalers have indicated their intentions to let the market forces determine demand and supply and have signalled their intentions to reduce their prices. Before the oil crisis, the price per gallon of gasolene was averaged at $337.32. During the crisis, the sale averaged $431.87 with the possibility of going up further. Though not back to the original price before the oil crisis hit the world economy, the price of fuel have declined. For example, the average wholesale price for gasoline was $400 per gallon.

This will cause some form of decrease by retailers which will filter down to public transportation owners/operators.

With a decrease in fuel prices, the profit margin of wholesalers and retailers of fuel, as well as the owners and operators of public transportation, would still allow them to operate at a comfortable financial level.

Government made the CT decision, because it was recognised that there would be a spill-off effect on every individual in terms of lower transportation cost and the resulting effects of lower/stable prices for goods and services.

While the loss in revenue to Government will be substantial, financial analysts feel that non-intervention would have been more detrimental to the economy.

With the decrease in oil prices, manufacturers would be able to experience reduced production costs through a decrease in transportation costs. Transportation costs account for a large percentage of a company's total cost of production, especially those manufacturers not located near their market place.

Based upon the assumption that world prices will not increase in the near future, after the current crisis is over, a fall in production costs should see companies funnel their additional revenue to other stages in the manufacturing process. For instance:

* The additional revenue can now be used to increase the amount of input or raw material purchased or made. This can then lead to an increase in the level of produce for that company and inevitably an increase in the general production;

* A source from a manufacturing company said that the additional revenue could be directed into the banking sector where the level of savings can increase. Higher levels of savings could mean an increase in the percentage of the lending ratio by the commercial banks, thus investment spending increases. Higher investments can read economic growth.

* The level of employment would increase in an atmosphere of investment prevails. This could mean an increase in government revenue through taxation. Government can therefore use the additional revenue to develop the economy further.

It is hoped that the public transportation services would return to the previous levels of fare structure for the man in the street and the businessman. Meanwhile, Government hopes that there would be national cooperation during the current volatile situation.

Prime Minister Samuel Hinds, who is responsible for energy, last week called on the nation to conserve fuel in view of the unstable oil situation.

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