Reduction in Consumption Tax yielding positive results at petrol outlets
But some minibus drivers still charging raised fares

Guyana Chronicle
February 16, 2003

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THE decision taken by the Government of Guyana recently to lower the Consumption Tax (CT) on fuel has reflected positively. Head of the Presidential Secretariat and Cabinet Secretary, Dr. Roger Luncheon said last week.

The effect of the Venezuelan oil crisis is being felt in Guyana, since Venezuela is Guyana’s main petroleum supplier. Hence petrol dealers were faced with an increased acquisition cost of diesel and gasoline following the massive strike in Venezuela.

The petrol dealers, in turn, increased their prices, and as a result the mini-bus operators and taxi drivers raised their fares. In an attempt to shield commuters from the brunt of the inflated fares, the Government of Guyana reduced the Consumption Tax on gasoline and dieseline. As a result, importers of gasoline benefited from a 30-per cent and 20-per cent reduction on the Consumption Tax on Gasoline and dieseline, respectively.

As a result, the local price per gallon of gasoline moved to almost $500. As a result, the cost of transportation rose. This increase in fuel prices also threatened a chain reaction of increases in commodity prices and services.

“The steps taken by the Government to restrict rising fuel prices have indeed led to pump prices being lowered and maintained at a reasonable level of about $330-$350 per gallon,” Luncheon said at his weekly post-Cabinet press briefing at the Office of the President.

However, Cabinet noted that some mini-bus operators plying certain routes have refused to lower their jacked fares to reflect the fall in fuel prices.

“Cabinet is again calling on those operators to recognise that maintaining the increased fares is unjust and unjustified and Cabinet is also calling on commuters to resist paying these increased fares which are clearly unjustified,” he said.

This new reduction in the CT besides arresting any negative effects on the 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.

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, Government announced on January 9, 2003 that “in 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, it has taken the decision to reduce the Consumption Tax on both gasoline and dieseline.”

Adding that with the decision to reduce the CT on gasoline by 30 per cent and diesel 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 Consumption Tax.

Transportation cost is the gateway to pricing of goods and services. It is expected that the subsequent fall in transportation costs 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 signaled their intentions to reduce their prices. Before the oil crisis, the price per gallon of gasoline 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 has declined. For example, taking one of the main fuel used, gasoline; the average price per gallon of gasoline was wholesaling at $400 per gallon.

This will cause some form of decrease by retailers, which will filter down to public transportation among 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 costs 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. (GINA)

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