VAT IS THE BEST THING THAT HAS HAPPENED TO GUYANA

Jun 03, 2011 Features / Columnists, Peeping Tom

---

When Guyana was finally liberated from the clutches of the PNC, the new government found the treasury virtually bankrupt.
The money that was being generated in revenues was being gobbled up by the provisions which had to be made for servicing the country’s external debt.
The defenders of the PNC government like to claim that while budgeted debt servicing was as much as 90% of total taxes, which left very little for any development after paying wages, in reality the government was paying far less because its actual debt service was less than what it was supposed to pay.
This is a shameless argument, akin to saying that while you are required to pay to a bank 90% of your income, which leaves only 10%, you can short pay what is due and therefore have more money to pay the bills.
It is precisely this sort of attitude that saddled Guyana with one of the highest per capita debt ratios in the world. It was because Guyana was not meeting its external debt obligations that it found itself in a situation whereby it could not service its interest payments on the debt it had accrued, with the effect that this interest grew and eventually had to be capitalized.
There can therefore be no comfort in the argument that while our debt provision was prohibitive, the actual debt servicing was far less than what was being budgeted, because Guyana was not paying the full amount that it was supposed to have paid.
Because of this huge debt and the need to regain international creditworthiness, Guyana had to borrow and beg in order to keep the economy going, even with debt forgiveness.
If the government wished to refurbish the court system it had to beg for internal assistance, and this often came with strings attached.
If they wanted to do drainage and irrigation works, they had to beg. To repair the major highways of the country, they had to sign billion-dollar deals with the international development banks.
They had to negotiate these loans, which often took years to be approved. Since also the country was, and still is, spending more than it was earning, it had to seek international help in obtaining enough foreign exchange. .
Guyana paid a huge price for the economic mismanagement of the economy under the PNC, but today, the country’s revenues are no longer being swallowed up by the external debt to the extent of what existed in the past.
Today Guyana still has a debt and it is growing, but so do most of the businesses in Guyana. Most of the businesses owe the banks.
Owing the banks or having debts is not a problem unless you cannot generate enough income to pay these debts. Thus your debt service ratio is very important, and today Guyana has a very impressive debt service ratio, despite the fact that the overall debt is still high. Guyana can afford now to pay its debt servicing, and this has come about as a result of sensible economic management.
More importantly, though, Guyana does not have to take nonsense from any international financial institution.
It no longer has to commit to conditions that adversely affect what it can do.
Today Guyana has reached the enviable stage of its development whereby it no longer has to rush to a development bank to borrow money when it needs to put in place additional generating capacity. It can afford to pay US$15M to build a road. It can afford to generate local funds to bridge the Berbice River.
It can afford the billions that are now being spent on drainage and irrigation. It can afford a lot of things, because of Value Added Tax (VAT).
VAT has allowed the government to significantly increase its earnings. It is VAT that is allowing the government to go on a spending spree and encouraging the Chinese government to lend the government so much money for certain projects.
The outlet to the Atlantic will cost some four billion dollars. This is far more than the entire wages bill of the private sector when the PNC left office. And it is being comfortably funded by VAT proceeds rather than having to seek international assistance.
Guyana no longer has to accept foreign diktat. It can negotiate from a position of greater strength. If the international banks get too fussy about lending us for a project, as they did with the bridging of the Berbice River, Guyana has options now and can find resources from VAT and from China to do what it wants.
There are obviously problems with VAT. It was unfortunate that its introduction coincided with the rise in prices of a number of food items, and this caused persons to associate the increases with the VAT.
But the main culprit responsible for the problems with VAT has been the private sector, which does not understand that VAT is not to be compounded at every transaction stage, and therefore ought not to result in an increase in prices.
The GRA has also not done a good job in explaining the VAT properly to the business community, many of whom are ignorant of how the tax is applied and how it is supposed to be collected.
The tax agency has nonetheless enjoyed a windfall as a result of VAT and this windfall is responsible for all the development works that we are seeing now around the country. VAT has made that possible.
However, even as VAT is placing more resources in the hands of the government, it is also placing a great deal of resources in the hands of the rich who are getting richer at the expense of the poor. Greater efficiency is therefore needed at the tax agency so as to ensure that VAT does not enrich those who already have too much.
There is a growing gap between rich and poor and some of that has to do with the fact that tax evasion is still rampant and is benefitting the rich more than the poor.
In a tiny country like Guyana, unless there are stronger measures put in place to ensure that the rich pay their fair share of taxes, it could mean that within a few years, the propertied class could use the wealth they have generated to gobble up most of Guyana, and this would have defeated the gains made as a result of greater revenues available to the government.

---

---