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VAT yields $20B more in unexpected earnings

Jul 18, 2008 News

Last year, Government collected a staggering $80 billion in revenues, thanks largely to its collection of the newly implemented Value Added Tax (VAT).
But prominent local Chartered Accountant, Christopher Ram, believes that a significant error in the computation of the tax system may have led to the estimated 76 per cent more than budgeted collection in VAT and Excise Tax collection.
Because of this, tax payers were burdened unfairly and even though the error was discovered, there was no attempts made by government to correct it.
Ram, of the Ram and McRae Chartered Accountants, explained that when the decision was made to replace several taxes with the VAT and Excise Tax, a list of goods and services used in the old tax system would have been used as the basis to calculate the revenues in the new one.
However, several key items were left out in this computation resulting in tax payers paying higher rates.
According to Ram, while Government is saying that it is losing over $1 billion because it zero-rated several key commodities, it is far from the truth since some of the revenues should never have been collected in the first place.
“…That in itself is a deception,” the accountant said.
According to Ram, early last year, after the launch of VAT, a very senior political functionary had “confided in me” that the government had discovered a significant error in the computation of the rate of the VAT resulting in the rate being higher than it should be.
“I was told of course that if I sought to divulge that information it would be denied. Recent events and statements by public officials, letters in the press, and the increasing evidence of the effect on poor people of the ever-increasing spiraling rise in prices while the government seeks to gain political mileage from its “initiatives to help the poor” causes me “to regret that I had not addressed this matter earlier.”
What really is the issue is that tax-payers were deprived of their money for 18 months, Ram stressed.
“I had decided that I would await Budget 2008 to see how the collections of VAT and Excise Tax compared with the amounts budgeted in 2007, since the government had also publicly committed to a revenue-neutral regime of VAT and Excise Tax,” Ram said in a statement Wednesday.
The increase was a staggering 76 percent over budget for VAT and a more modest 20.9 per cent for Excise Tax, an overall increase of 47.8 per cent.
“Shortly after the Budget was presented I wrote my source reminding him of the conversation about the rate and offered the view that while part of the increase was attributable to the 4.7 per cent growth in the economy and a 14 per cent increase in imports over Budget, “a significant portion of the excess was attributable to the VAT rate initially being set too high”.
Suggesting that initially he was thinking of VAT rate being around 12 per cent, the accountant said that he wrote a letter making such a reduction.
“My letter was acknowledged promptly but to date its contents have not been addressed with me.”
Ram argued that while prices of wheat and other goods had indeed exacerbated food prices locally, the VAT computation error has served as a catalyst of more burden on the Guyanese people.
He challenged the political parties who were instrumental in passing VAT in Parliament to play their role in correcting the error.

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