Is the President drowning in a vat with VAT?
Freddie Kissoon column
Kaieteur News
January 16, 2007
Whenever controversy swirls in this country, and I write on them, I would advise my readers to bear in mind that I am not a politician. I regard myself as a social commentator, a human rights activist and a non-affiliated political activist.
Based on the content of the dispute, this column will embrace the validity of truth contained in the conflict. I have no party affiliation, only an undying attachment to this country which I cannot see myself permanently leaving.
I did not support the criminal violence that fixated itself in Buxton. But neither could I have sided with the extra-judicial posses that hunted the Buxton gunmen. I endorse casino gambling in big hotels in Guyana because I think it is part of a changing world.
I do not welcome the proposed Health Bill. For me the PPP has done remarkable things with the Georgetown Public Hospital for which immense gratitude should be shown by the poorer classes but I am not a sympathiser with this government because I feel it is simply an autocratic machine. I believe the PNC's behaviour from 2003 onwards should have met with a positive response from the ruling party. On the other hand, I think the PNC deteriorated badly and showed its true colour with the 2005 Vice-Chancellor scandal at UG.
This is my approach to the writing of this column. Since VAT became embroiled in a tempest, I have been asked by countless people to give my views. I have. I am offering it again because not a day has passed without a question being asked of me about VAT. More than any citizen of any Caribbean country, I have written enormously on the culture of tax evasion.
I studied tax evasion looking at a huge mountain of confidential records going way back into the eighties. This country will never progress one inch into a bright, modern future because if tax evasion is not extirpated from the sociological thinking of the self-employed (including all business entities), poverty is going to be an eternal ghost eating at the flesh of Guyana .
In 1998, I had my holiday (the first one in decades) in Wakenaam where my wife has her roots. From the stelling onwards, the main road was impassable. I spoke to a majority of farmers and asked them to pool their resources and repair that important artery.
All told me that it was the task of the Guyana Government to do it. Not one of those farmers paid income tax. The reason is that historically, the payment of taxes has been regarded as a stupid and oppressive thing.
If the government of the day requires you to pay taxes, you think the government is a nasty dictator.
Something happened along the way. As the country got poorer and asked for help from the World Bank, the Bank told it that it must have a modern tax system as with the very countries that are aiding Guyana 's development. It is against this background the Fiscal Amendment Act, 2003 came in and VAT.
I welcome VAT because in a country where the self-employed (including all the big business houses) do not (I repeat—do not) pay even –half-decent taxes, VAT will expand the tax net. People who no not pay taxes will have to pay something to the Treasury.
The trouble is that the government is not telling us the truth. The World Bank probably demanded that VAT begin at 16 per cent. That is the highest in the Caribbean especially when you think that your salary is taxed at 33.3 per cent of your earnings. VAT should not have begun its visit to Guyana at that margin.
The Chronicle yesterday did a stupid thing when it quoted the rate of VAT for other countries. The point was to tell us that Guyana 's 16 per cent is low.
The Chronicle was being comical and foolish because in most instances, the high VAT rate the paper quoted is for countries whose incomes are a thousand times greater than Guyana 's. So Denmark is 25 per cent. But in Denmark , using American dollar as the standard currency, a toilet cleaner earns more than a UG lecturer.
The 25 per cent VAT in Denmark then comparatively speaking is lower than Guyana 's. Take Finland , a country that is one of the richest in Europe . VAT there is 22 per cent. But Finland 's GNP towers above Guyana 's. When you are looking at VAT rates for other countries, it is naïve to overlook income structures.
President Jagdeo certainly didn't do his image any good by proclaiming that he expect prices to go down. As an economist, he had to know that prices had to go up because he, Jagdeo, approved of the application of VAT to goods that were previously zero-rated. How can you tax foods that the lower classes use and tell the nation that VAT will bring down prices? President Jagdeo has been too harsh on the business community with the implementation of VAT.
I am not in the least unhappy how he has treated the investment sector.
If Burnham or Hoyte had misbehaved in government, those very business groups would have financed protest and encourage opposition movement including the then big opposition entity, the PPP.
Since 1992, the business community saw the evolution of PPP rule in this country and the shape it was taking. But they forgot the lessons of history. Maybe after this crushing by VAT, the entrepreneurial class in Guyana will employ some of us analysts to do political evaluations for them.
I know a commercial outfit that brought in Christmas stocks in late October.
How can you tell that outfit that they will get refund for imports brought in for December? How can these people who paid 30 per cent consumption tax on goods that they imported in October charge 16 per cent VAT?
That is a stunning loss if they were to do that. One hopes the business community is not making a genuine mistake in their assignment of VAT on goods they buy from overseas. In some cases, this is happening.
When Mr. Black imports a product that cost him $100, that $100 is the value of the item. He pays 16 per cent VAT. This 16 per cent should not be added to the value of the product. That is VAT which he will get back. What he has to do is to add his mark up on the $100. But if he does that, and add VAT to the value, then the consumer will be hurt. Here is how it will work.
He adds VAT then his mark up to the item, then, he sells to the buyer at that price. So $100 plus 16 per cent VAT give you $116. If he adds his 10 per cent mark-up, then that is the total he will sell to the buyer. He cannot do that. He has to sell at $100 plus his 10 per cent mark up and not include VAT because he is getting VAT back from the GRA.
If he does that then the consumer is pressed. But guess who the winner is? The GRA, because the GRA collects more than it should. VAT is good for Guyana but it has not been properly worked out. Can the PPP get anything right?