Accounting firm launches VAT handbook
Ram flays GRA, raises spectre of chaotic VAT implementation
Stabroek News
November 16, 2006
While the Guyana Revenue Authority (GRA) seems bent on pursuing the implementation of the Value Added Tax (VAT) come January 1, the private sector still has reservations on the capabilities of GRA and unless the stakeholders address this the tax could see chaotic implementation.
These points were raised by Christopher Ram, Manag-ing Director of Chartered Accountants, Ram & McRae, at its VAT and Excise Tax handbook launch last evening at the Georgetown Club.
The business elite and the diplomatic corps gave full support to the launching but the GRA did not accept an invitation seeking their presence, according to an announcement by the Chairman of the proceedings, Stabroek News Editor-in-Chief David de Caires.
The handbook which retails for $10,000 and is divided into 12 chapters hopes to add clarity to the various provisions in the legislation for businesspersons, company directors, managers and other professionals, stated the accounting firm. Included in the handbook are annotated copies of the relevant legislation including its regulations and it seeks to provide information on these Acts at 'your fingertips.'
The handbook features accounting examples, cases and relevant information to clarify language popular among the persons drafting the legislation and includes some forms which have been prescribed or are required to be prescribed under the VAT Act. The GRA is yet to make public all the forms that will be used under the VAT Act.
"Do our policy makers and administrators really believe that the large number of professionals who do not file income tax returns and the lawyers who have stymied every effort to tax them will have a change of heart come January 1 or that the court will be any less sympathetic to them?" asked Ram.
Quoting from an IMF Tax Reform Study in 2002 Ram said that, "despite what the government tells us about revenue neutrality of VAT and Excise Tax, the whole basis of the VAT is 'significant revenue increases … and promoting revenue productivity'".
Ram posited that Guyana having taxed income at rates that are the highest in the Caribbean "we now impose VAT at the highest effective rate in the region."
He noted that Barbados, Jamaica and Trinidad and Tobago have more exempt and zero-rated items under VAT, including food items, medical services, agricultural inputs and books, than Guyana. As it stands now financial and educational services, travel by air, prescription drugs and services provided by registered medical institutions are either exempt or zero-rated. Food items such as milk, rice, onions, garlic, potatoes, salt, split peas and others will be liable to the tax.
"VAT is wider in scope than any of the taxes it replaces - it taxes goods and services and for the first time imposes a tax on the importer of a service not used in a taxable supply.
Charitable institutions may also not be spared from VAT, said Ram.
"For the first time as well, the State, an agency of the State and a local authority are recognized as key players in a Tax Act while charitable institutions including the churches may find themselves as taxable entities."
The accountant opined that for the implementation to proceed with the law as it was assented to means that "we ignore recommendations with respect to the following specific issues contrary to advice and undertakings given."
Ram said that it therefore means that at this point there will be no zero-rating of basic food items, agricultural inputs or baby foods; there will be significant increases in the cost of living; removal of taxes on airline tickets while placing a tax on educational supplies; a windfall to government on unsold goods at December 31, which would be taxed twice - Consumption Tax and VAT; no relief for bad debts; no provision to deal with second hand goods; two sets of interest paid on amounts owing to the GRA - once under the VAT Act and the other under the Financial Administration and Audit Act and leaving the payment of refunds of overpayment at the discretion of the Commissioner General. As it stands now, on Tuesday GRA Commissioner Khurshid Sattaur noted that a decision is still to be made on stock on hand and the cash flow implications of VAT, as a result of delayed refunds. There are plans for a list of basic food items but when this will be provided by the GRA is not known.
Not much praise for GRA
"In fact the evidence of the performance of the GRA is not flattering even when compared with the heavily criticized separate entities which constituted the merger (Customs and Inland Revenue)," said Ram. He noted that, "GRA's own annual reports show that while each dollar spent by the tax collection agencies before the merger brought in close to $100, in 2005 a dollar spent now brings in a mere $35."
Also noted was the recent transferral of staff from the traditional tax collecting agencies to the VAT Implementation Unit.
De Caires also asked whether the country was prepared to administer noting that "the danger is that the day will arrive and we would be unprepared." He noted statements by Sattaur that of the 2500 businesses targeted for VAT registration less than 10% were registered just over a month prior to the implementation of the tax.
Criticism was also levelled by Ram at the GRA's decision to spend millions renovating a building that it plans to use for a short while for the VAT office.
"And no one can be heartened by the astonishing report that the GRA is spending some $100M on renovating a building rented for two years. Even using the unjustifiable benchmark of expenditure to revenue of 3%, it means that the VAT office starts with a deficit of $333M," Ram told the business executives and diplomats gathered.
Ram was not very impressed by the VAT education carried out by GRA in the press and likened it to a pre-election campaign.
"Some of the VAT advertisements, skits, jingles and statements have little information content, are confusing and seem more appropriate to the pre-election campaign than to the serious business of taxation. Also criticized was the list published by the GRA over the weekend that advertises the savings consumers will experience. This list that included furniture, clothing, cosmetics, electrical appliances, household ornaments and other such items, Ram noted, would not ease the burden on the poor since its excludes basic items like oil and salt that are needed every day, along with medical care such as over-the-counter medication. This point was reiterated by earlier speakers the Consumer Advisory Bureau's Eileen Cox and Grantley Culbard of the Clerical and Commercial Workers Union. Both emphasised that the poor will suffer if these items are taxed at the VAT rate of 16%, while the income tax remains the same. Culbard did not harbour much hope also that salaries will increase significantly to match any significant price changes VAT will bring and questioned whether or not businesses will pass down to the consumer any benefits from VAT.
In his remarks the Chairman of the Private Sector Commission Michael Correia noted that "consumers (need) to take note, some businessmen, may not understand how the VAT process works, so the PSC recommends to all consumers, that they shop around for the best prices.
Only this week the GRA Commissioner noted that consumers will have to police VAT since there will be no price controls instituted.
The next course of action, Ram said, rests with the private sector and civil society to decide whether the legislation meets the requirements of the business community and whether the substantial delays in dealing with certain administrative issues allow for a January 1, 2007 implementation.
He warned "if all these stakeholders were to ignore the realities that so starkly confront us come January 1 we will have at best chaotic implementation and instead of two poorly performing revenue collecting units under the GRA, there will be three … Collectively we can (no) longer sit on our hands". (Nicosia Smith)