VAT is good
Peeping Tom
Kaieteur News
November 6, 2006
If Guyana does not implement Value Added Taxation (VAT) come January 1, 2007, it probably will never be able to implement it.
The key task therefore facing the government at this time would be to ensure that in the short period of just under seven weeks until the tax comes into force, the Guyana Revenue Authority is capable of managing the implementation of VAT.
This initial task will be made easier when one considers that only a few hundred (if that many) companies and businesses will be required to be registered for Value Added Taxation. Had the threshold been two million dollars we could have expected a flood of registrations and therefore an increased possibility of problems.
The introduction of VAT will have its problems. The Guyana Revenue Authority is no paragon of efficiency. And its failures over the past years will likely mean that it will administratively have problems in managing the introduction of VAT.
However, every journey must have a beginning and if we turn back now on VAT, that journey will never begin. VAT's original implementation has already been put back following representation by the private sector, and cannot and should not be further delayed.
At the same time, steps must be taken to ensure that the Guyana Revenue Authority is ready for this important step in local tax reform.
The job is not made easier when one considers that the government is being forced into tax reform in order to ensure revenue neutrality as well as cushioning the effects of tax on the cost of living.
The President of Guyana has already indicated that the cost of living relief will be applied directly to the consumer since the experience in the past is that not all businesses passed on the benefits of tax reduction to the consumer.
I support this move. Instead of compensation for any increase in taxes by lowering corporate and personal income taxes, the government is doing the right thing by ensuring that the adjustment will be made on the item itself, even though this in itself is no guarantee that the lowered VAT, in some cases, will be passed on to the consumer.
If there is any reason why the government should proceed swiftly to implement VAT it is what is already happening in the marketplace. Prices for many items have already gone up and this has nothing to do with VAT.
And it demonstrates the nature of some sharks in the economy. What is happening is unacceptable and therefore I have little sympathy for those who are calling for the implementation of VAT to be delayed.
I support the application of VAT on books. I do not believe that a 16 per cent increase in the taxes on books will place them out of the reach of consumers because they are already outside of the reach of consumers. The cost of books in this country is prohibitive because of the low income of most Guyanese.
So who really benefits from a zero tax rate on books? Certainly not the poor man since he can hardly afford to buy a novel in this country.
I also support taxing computers. The companies that deal with these items have been enjoying the benefits of a zero rate on these items for a long time now, since the Hoyte administration.
But can the small man still afford to buy a computer? How much taxes have been foregone as result on the zero tax on computers? And who has benefited from the billions in revenue that was foregone?
Sure the prices of books and computers will increase but so too will the money that the treasury collects. I would prefer putting that money in the hands of the consumer so that he or she will decide what they wish to purchase with it, rather than feathering the coffers of the select few who can afford the luxuries of a computer or an encyclopedia. And I can tell you that, given the cost of computers and encyclopedias, only the select can currently afford these items.
What I believe will make the introduction of VAT much smoother and acceptable to the people of Guyana is a more effective public relations campaign by the Guyana Revenue Authority. The GRA has failed to explain this tax to the ordinary man and woman. All we are hearing learning through the television, radio and newspapers is who is required to be registered, how many taxes VAT will replace and when it will be introduced.
Guyanese already know this. What they want to know is how the tax will be applied. For example when you import an item for sure you will have to pay VAT. But what is this VAT chargeable on?
Secondly, as an importer, when you sell the item to a distributor on what basis will the VAT be charged and does the importer have to collect the VAT for the GRA? Then, when that distributor sells to the wholesaler, what portion of the VAT (or is it all) has to be handed over to the GRA?
This is what the public and especially businesses need to know and this is what they are not being told since even though only those with an annual turnover of $10 million are required to be registered, the introduction of VAT will mean a change in the accounting system for all businesses.
And of course prices will rise. What do you expect in Guyana ? But those businesses that have already increased prices and are still planning to slap on another increase must understand that the more they increase their prices the more VAT they will be required to bear because, as the name implies, the tax in on the value that you add, and the more value they add, the more they will pay.
And a number of small businesses who have only been paying token taxes will now be required to pay more because the way in which VAT operates means that more information is available to the tax man on the purchases and sales of businesses, since in order to claim a tax credit businesses will be required to show their records.