Jordan says VAT on electricity and water was recommended by Tax Reform Committee

Dec 10, 2016 News

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By Kiana Wilburg

For five days, Finance Minister Winston Jordan endured an onslaught of heckling, negativity, and insults from the political opposition during the debate of the 2017 budget. And though they were once again, not present for his rebuttal,

Jordan only concluded that “the gang is still up to its old ways”.
He made this, among other comments, during the wrap-up of the 2017 budget debate yesterday in the National Assembly.
There, Jordan thanked many for their support including his dedicated staff, President David Granger, members of the Government, House Speaker, Dr. Baron Scotland and Private Sector members. He even extended gratitude to the Opposition for their presence in the House.
Diving into his presentation, the Finance Minister commented that contributions from Members of the Opposition were consistently confused, disjointed or blatantly erroneous.
In this regard, he sought to make a number of clarifications, particularly as it relates to tax reform.
Jordan reminded that between 2009 and 2013, the PPP/C regime undertook two comprehensive studies on Guyana’s tax system and its administration. He noted that fundamental reforms were proposed in both studies, but the recommendations were not implemented.
Instead, Jordan said, in 2011 the PPP undertook major tax policy reversals when the Fiscal Management and Accountability Act of 2003 was amended to introduce more exemptions and remissions that ultimately made tax administration difficult and revenue losses significant.
While the changes in the tax laws have not been insignificant, Jordan said that the framework remained largely intact supporting combined high rates, a plethora of concessions and exemptions on a discretionary basis and high levels of evasion across sectors.
Except for the merging of the two main revenue departments, Jordan said that the tax laws and the administrative structures have remained largely unchanged.
Jordan reminded of the establishment of a Tax Reform Committee in 2015. The Finance Minister said that the Committee in fulfilling its terms of reference, identified a number of core areas for effecting change in the tax system.
The Committee said that there is a need for greater buoyancy in the tax system, since revenue, as a share of GDP, had not risen very appreciably in recent decades.
The Committee said that in order to compensate for a relatively high tax rate, and, also, to encourage increased flows of investment, the authorities have a mainly discretionary, insufficiently transparent incentive system, which has gotten out of control and, moreover, there is little evidence of its effectiveness. It stressed that a lowering of the corporate tax rate ought to vitiate the need for a plethora of tax incentives.
According to the Tax Reform Committee, broadening the tax base is required so as to both reduce the burden of existing individual and corporate taxpayers and enhance the revenue contribution of the “hard-to-tax” self-employed, the significant number of unincorporated businesses which pay little or no tax, and those who make up a relatively large informal sector.
It said that evidence disclosed that the VAT was not being applied across the country and was widely ignored by significant segments of the economy.
It stressed that there was an appalling level of tax evasion among professionals, with only a handful of doctors, accountants and lawyers reporting income over $10 million, requiring VAT registration.
With regard to VAT, it said, “Decrease the standard rate of VAT to 14 percent, and introduce an intermediate rate of 7 percent. Increase the VAT registration threshold from $10 million to $12 million. The water and electricity authorities should determine the levels of consumption required for an average household. VAT should be applied to levels above this amount.”
But even then, the Finance Minister said he was not convinced about tampering with VAT. As such, he enlisted the help of the Caribbean Regional Technical Assistance Centre (CARTAC).
That body, upon analysing the system, said that the numerous instances of zero-rated domestic supplies (of both input and final goods) and exempt imports have undermined the VAT base and its performance.
It has since made a number of recommendations, one of which includes that there be a tax on all fuels, electricity and water sewerage services at a standard rate.
But of all the clarifications he had to make, Jordan said that what was truly “lamentable, pitiable and laughable” in his view was the attempt by the Leader of the Opposition, Bharrat Jagdeo in painting himself as the Champion of the Poor in this society.
He said that Jagdeo is “the very man who bought prime, ancestral lands at pepper corn rates and built for himself, one of the most posh mansions in the country.”
He alluded to the fact that for all his life, Jagdeo has been swimming in a pool of luxury or created room for such where it did not exist. In this regard, he noted the Ex-Presidents’ Pension Bill and Jagdeo’s role in making changes for his own benefit.
“Mindful of the General Elections that were scheduled in 2006 and uncertain about his political future, the then President Jagdeo – now the Honourable Opposition Leader – caused to be introduced and passed, the Ex Presidents’ Pension Bill in 2004. The Bill was signed into law the same year by Jagdeo.”
Jordan continued, “Jagdeo’s salary in 2006 was $223,783 which would have given him a pension of $195,810. Having won the elections in 2006, Jagdeo set about fortifying himself, financially. Between 2006 and 2011, his salary increased from $223,783 to $1,304,503 or nearly 500%.”
The economist said on that salary, his pension would have been $1,232,756. Jordan stated that the current President’s salary is $1,729,607, giving PPP’s three ex Presidents their current monthly pensions of $1,513,406 each, for a total of $54,482,616 annually.
The Finance Minister said that this is equivalent to 83% of the annual increase in salaries granted to the then 26 Ministers in 2015.
“But I suppose that this is reflective of the Opposition’s approach. Based on their performance in their 23 years in office, it is clear that they have no guiding, coherent vision for the future; no concrete plans for achieving better economic and social outcomes for our citizens,” expressed Jordan.
The Finance Minister said, “this budget is the finest budget” that he has worked on and produced. He noted that in 1981, “under the indefatigable and indomitable Clarence F. Ellis”, the then Chairman of the State Planning Board, he was involved in the preparation and/or presentation of 25 national budgets.
Jordan confidently stated that the 2017 Budget is audacious in outlook; it represents a change in the narrative that has dominated the economy for the past 50 years, and is a paradigm shift.
In spite of the cries of the opposition and their call for a “do-over”, Jordan maintained that his 2017 Budget sets the stage for the transformation of the economy.

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