High fuel tax bad for economy -Thomas
Stabroek News
May 21, 2004
The government is making a windfall of $30 on every gallon of gas sold at current prices and can comfortably slash the consumption tax by nine percentage points and still not affect its revenue base.
The government's revenue intake has moved up from $30.45 a litre in January to $37.3 currently, an increase of $6.7 a litre or $30 a gallon. Even at a tax rate of 41%, or 9% less than the current rate, the government would at the current high prices still be slightly better off in its revenue collection.
Petrol dealers and other members of the private sector are clamouring for a reduction in the C-tax of 50% which applies on the cost, insurance and freight (CIF) price of gasoline.
Minister of Tourism, Industry and Commerce Manzoor Nadir, yesterday afternoon promised to update the private sector within 24 hours on this demand. The Guyana Manufacturers' Association (GMA) yesterday met with Nadir to urge a reduction in the C-tax as well.
Gasoline prices have been rising since the start of this year and it has been several weeks since Nadir undertook to look at the C-tax but nothing has been done.
In the meanwhile, prices for goods and services have begun to rise on account of the higher cost of fuel. This is coupled with the effect of a lower valued Guyana dollar. Additionally, the rice industry, which has been hard hit by floods, is now in more serious trouble as the cost of saving the uncertain crop increases. Dharamkumar Seeraj, general secretary of the Rice Producers' Association says the association approached the government to have the C-tax lowered but has not gotten a response. Seeraj says the increased fuel cost will have a "severe impact" on the cost of producing rice. Pumping, land preparation and harvesting all require the use of fuel.
However, the government has not seen it fit to act quickly on the issue, instead profiting from the windfall. The lack of action is in direct contradiction with the government's policy of mopping up liquidity to ease the pressure on inflation and the exchange rate when fuel is the major source of import for all sectors of the economy and feeds directly into each household through electricity, transportation costs and food bills. Instead, the government's message has been conservation of fuel, which would mean conserving on production and output.
Asked to comment on the government's policy, Professor of Economics at the University of Guyana, Clive Thomas, says he has always opposed a high-tax policy on fuel given the nature of Guyana's economy where fuel is a major consumption item and makes the economy uncompetitive.
"We have never got the economic benefits of the high taxes," Thomas said, explaining that it is lost in the uncompetitive nature of Guyana's export industries. "I believe the tax on fuel should be very minimal and the government should look at other sources of revenues."
Thomas describes the high tax policy on fuel as Guyana shooting itself in the foot as it is not a strategy for a developing nation as export-oriented and open as Guyana is. He notes that if people conserve on consumption of fuel, then revenue would also be lost and if the objective is revenue, the government should find the most efficient way to garner revenue and not one which is punitive and cuts consumption.
Thomas believes the government is waiting it out, hoping the high prices are transitory which will reduce the need for it to take an initiative on the matter.
Christopher Ram, chartered accountant, questions how the government can hold steadfastly to one of its objectives (revenue collection) while sacrificing another (controlling inflation).
Ram believes that the issue requires serious consideration of the government's tax policy on income, investment and consumption as well as revenue garnering. It also requires an assessment of the importance of a functioning transportation system in people's lives and on the economy.
He concurs with Thomas that in the case of Guyana, the tax on fuel should not be high but says it should not be promoted as a cheap petrol policy but rather one to spur economic activity, given that fuel filters through to the rest of the industry.
Ramon Gaskin, consumer advocate, could not comment on the issue without knowing the effect of the higher prices on volume sales but argues that Guyana should have a low tax policy on fuel and there should be no duty-free fuel.