PNCR highlights inadequacies in VAT implementation
…asks Govt. to pronounce on stocks in hand
Kaieteur News
November 17, 2006
The PNCR is calling on the government to honour the undertaking given by its representatives in the Select Committee and delay the implementation date of the Value Added Tax.
At his weekly media briefing yesterday, Party Leader Robert Corbin said that from all appearances it seems that many matters are not quite clear to either consumers or producers.
He said there is doubt as to whether there are enough trained officers with the requisite knowledge of the tax itself and of its administration.
“The outlying GRA offices, it is suggested, does not have enough, if any, officers who can deal with queries. Is it possible that the administration of other taxes will suffer while personnel and financial resources are diverted to deal with VAT?”
The PNCR posited that Government should rethink the operational date for the commencement of VAT in order to ensure a smooth transition to this tax.
“If it is truly the case that VAT is a revenue neutral tax then postponement of its application for, say, a year will not affect revenue negatively,” Corbin said.
The party is also calling for a zero rating under the VAT regime on all food items which were not subject to consumption tax, pointing out that essential food items will cost more if they are not zero rated.
According to Corbin, during the Select Committee examination of the Bill, the PNCR pointed out that the scenario chosen by the government, and the Bill that was before the Parliament, did not zero rate certain essential food items such as onions, garlic and split peas.
“The law that is on our Statute books at present does not zero rate these items. Nor does the law zero rate certain educational materials and textbooks.”
Corbin said that when questioned on these matters, Finance Minister Saisnarine Kowlessar would only say that the government would make an announcement shortly.
“There are now less than two months before the Act comes into operation. If the government does not zero rate the consumer goods and educational materials that currently pay no consumption tax then it is indisputable that the prices of these commodities to consumers would increase by at least 16 per cent,” Corbin stated.
To fail to do so, Corbin posited, in the case of food items would be breaching an undertaking and in the case of educational items, be an act of callous disregard for the children of the poor.
According to the PNCR, there is also great need for Government to improve its public awareness and information programme and advise businessmen on the treatment of stocks on hand at December 31, 2006 which would have already been subject to one or more of the taxes now existing.
The PNCR-1G believes that what consumers need to know is exactly how the tax is to be applied, what items will be zero rated, how they could recognise and calculate exactly what amount of VAT is payable on a given item and whether this tax would be explicitly shown for any item purchased.
“There is certainly no provision requiring this in the law as it stands,” Corbin said.
He added that the Guyana Revenue Authority also needs to inform consumers as to whether there is, or will be, a mechanism through which they could seek redress if they believe they may be overcharged.
With regards to the treatment of stocks on hand at December , which would have been subject to one or more of the existing taxes , Corbin said this is a matter that needs to be clarified with certainty and expeditiously.
He related that private sector businesses are concerned that they may be in possession of stocks at December 31, 2006, on which they would have paid current taxes.
“Then come January 1, 2007, these stocks could be subject to VAT. It is difficult to understand why a decision could not be forthcoming on this issue. One possible solution could be for the GRA to grant a tax credit equivalent to the current taxes paid. This credit could then be applied against VAT due,” Corbin said. He urged a swift decision on this matter.
The Opposition Leader said another point worthy of consideration is whether there should not be initial application of VAT on a narrow range of goods and services, with an expansion of the range over time as the kinks in administration and application are sorted out.
The PNC noted yesterday that the Guyana Revenue Authority appears to have resorted to threats to the business sector rather than insisting that the government make available to the public, the list of food items that would be zero rated and intensifying its public education programme and providing adequate answers to the justifiable concerns of the business sector.
The PNCR stated that while it was not opposed in principle to the introduction of VAT, the proposed VAT scheme, contrary to Government's representation, was not revenue neutral.
The party also strongly believes that VAT could be less than 16 per cent if revenue neutrality is truly the objective.
Corbin noted that from the inception the government advertised and sold VAT to the public as a revenue neutral tax.
He pointed out that the consultants who did an estimation of the impact of a value added tax pointed out that “from all our simulations the net yield of the VAT and excise taxes exceeded the yield of the taxes to be replaced.”
Only rates of 15 per cent and 16 per cent were used. They also pointed out that official GDP data is underestimated “and it therefore does not reflect the level of economic activity in Guyana particularly in the wholesale and retail sector….We therefore believe that conclusions based on the use of such data for the analysis of the impact of VAT and associated excises are likely to be inaccurate and misleading,” Corbin stated.
Notwithstanding this, the Opposition Leader said that Government, in applying a VAT rate of 16 per cent, completely ignored the fact that official GDP is underestimated by at least 40 per cent.
“Thus the yield of the VAT plus excise taxes is heavily underestimated based on the use of official GDP estimates.”
He added that the party's VAT symposium scheduled for Tuesday November 21, 2006 at the Rupununi Room at the Tower Hotel from 4:30 pm will address these and other matters.