Just some thoughts about VAT
My column - by Adam Harris
Kaieteur News
December 3, 2006
This past week was hectic. There was the strike by the City Council workers, the announcement that there are 100 days to Cricket World Cup 2007, the observance of World AIDS Day, and of course, the continuing war between Guyana Power and Light and the City Council.
But we should not forget the announcement that the Value Added Tax would see a wide range of goods being zero-rated, and that people coming back would enjoy certain conditions on their imports.
Prior to the announcement by the Finance Minister, people had all manner of concerns about VAT. Of course, the biggest fear was that the cost of living would rise. Chartered accountant Christopher Ram told an audience that he compiled two baskets of goods and found that no matter how hard he tried he could not help noticing that the prices would rise.
I sat back and wondered how this could be possible when VAT would come in at 16 per cent while the importer pays, today, as much as 35 per cent on certain items that adorn the shelves. It never occurred to people that they were being taxed every time they made a purchase because they were actually paying back the high taxes paid by the importer.
Of course, the taxes were hidden in the purchase prices, so people felt that they were buying only something at a given price. For example, a man buys a shirt for $5,000, but the actual price would have been $4,000 if the importer had not put on a 30 per cent tax recovery cost plus his mark-up.
According to the Minister, the shirt should now cost less because the tax recovery would be only 16 per cent, some 14 per cent less than the previous tax charge. If this is indeed true, then many things would cost less.
But I could not quite believe this, because there is no businessman who would consciously lower his price, unless he is forced by competition. I could see the businessman charging what he did for the shirt, PLUS an additional 16 per cent. It must have been this that caused Mr Ram to conclude that prices would rise.
Then there is the problem of policing the various entities, registered or not registered, for VAT. Commissioner General of the Guyana Revenue Authority, Khurshid Sattaur, once told me that it would require an army of officials even greater than the Guyana Police Force; and because of this, the drive would not have every entity registered for VAT.
But when the Finance Minister addressed the press, he said that there were conditions that could see just about every entity that depends on the large wholesale outlets being registered. The Guyana Revenue Authority would check the records of the wholesalers to see to whom they sell, then go after the smaller retailers.
He spoke of benefits to be had from registering. For example, there are the tax refunds and, of course, the ability to claim refunds on those articles imported before January 1, 2007. Unless a business is VAT-registered, those claims cannot be made.
He announced a long list of things that would not attract VAT. These include most of the basic foods, computers, books, Government-sponsored imports, and the like. Split peas do not attract VAT, but black eye peas do. When this was brought to my attention, some people also said that split peas represent a significant part of the diet of one ethnic group, although every Guyanese consumes split peas.
Black eye peas attract VAT, and people attached ethnic reasons to tthis. If the truth be known, black eye peas are grown right here in Guyana, perhaps not in the large quantities needed to supply the nation, but if a man plants his own black eye peas, and retails some, he can charge VAT.
Many small farmers would not be VAT-registered, so the black eye peas' farmer would enjoy a windfall.
Then there are the books. These are zero-rated, but magazines are not. One importer said to me that magazines such as Readers' Digest, Time, and Newsweek could disappear from Guyana, because once the importer brings them in, those which are not sold would represent a loss to the bookseller. And no businessman is prepared to keep losing money.
The travel tax would not be repealed after all, so airline tickets would be just as expensive. When the government announced that travel tax would be no more, I frowned. Guyana is losing people at a handsome rate, so I believed that the government would do everything to make it more difficult for people to travel overseas. That was why repealing this tax did not make sense, and I was not very surprised when Government announced that this tax would remain.
What we are not being told is that the Excise Tax would be there to collect revenue where the VAT offers an ease. The sin products—cars, alcohol, tobacco, and things like that-- are going to cost much more.
The major argument is that these things place a burden on the health sector. Whatever revenue the state collects from these things, it must spend on the various hospitals. So, as is the case in the United States and some other countries, the state is going to tax these things out of existence.
But if that is going to happen, one must wonder at large companies like Banks DIH and DDL being able to survive. Banks DIH has long been complaining about the level of taxes that it pays. On one occasion, Chairman Clifford Reis announced that the Lord giveth and the Lord taketh, but that the government only taketh.
To further tax these entities with the hope of getting people to shun these products that eventually lead to additional pressure on the health system is not going to do anybody any good.
But I suppose that is something that they would work out. They are going to argue that they provide employment for a large section of the population, and to tax them further is to create conditions for retrenchment.
But for all this broadening of the tax net, will people like me be asked to pay less taxes? I doubt it. There was a time when the Government said that the personal income tax rate was so high because people like me had to pay for those who simply refused to pay. Well, if these people are going to be caught up in the tax net, then my taxes should be reduced. If that is not going to be the case, then I can see the Government collecting more money, which it would funnel into national development.
However, people are telling me that foreign inflows are reducing, and that the government has to find ways and means of making up for the shortfall. VAT is supposed to be one of the ways.
There are certain companies that sell a service, among them television stations. Are they going to have to charge VAT on their advertisements? Are they going to have to pay VAT to the GRA whether they charge VAT or not?