Lower taxes and liberalisation – the key economic changes needed

Dec 17, 2008 Features / Columnists

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Peter R. Ramsaroop, MBA

INTRODUCTION:
The key factors to the economic development and sustainment of any country are simple and the same from the Egyptian Empire to the American Empire.  Before there were social sciences called economics and psychology, before there were MBAs and Accountants, certain natural factors existed which when honoured brought prosperity to a people.
What are these factors? These factors are mainly an entrepreneurial spirit of the people, access to capital and low taxes. Whilst these factors are simple and clear, they often manifest themselves within the political framework of the particular society.
It is the political framework of a society that either properly harnesses these factors for the overall prosperity of the country or either stifles these factors to the detriment and stagnation of the country. This concept holds throughout all societies and empires from time immemorial to the present.
What does this have to do with Guyana? Well, the answer is simple. Guyana’s development is directly correlated to the political framework of the country. The political framework is much more than an abstract system of government of the country, as it encompasses the attitudes of the members of government and the public service of the country, as well as policies that are implemented.
So let me restate, Guyana’s economic development is directly correlated to the political framework of the country. A simple glimpse of history proves this. Pre-Independence Guyana had a solid economy, Post-Independence Guyana with its socialist machinations suffered from a deteriorating economy, and the Hoyte’s Economic Recovery Programme brought about increased GDP until 1998, and since then Guyana has suffered a slump.

ENTREPRENEURS
Guyanese have proven their entrepreneurial spirit. Let me restate what I wrote in a previous article: “We have seen the snow-cone vendor, the pork-knocker, the dredge owner, the peanut seller, the market-stall owner, the tailor, the mixed-tape seller, the fisherman, the minibus owner,  the cooked-food vendor, the educator who gives private lessons, the carpenter, the mason and the speed-boat transportation owner.
Recently, in the IT field, we have seen the Guyanese entrepreneurial spirit blossom into the development and the proper running of internet cafes. Ten to fifteen years ago, internet cafes were nonexistent in Guyana, but today they largely abound solely because of the Guyanese pioneering and enterprising spirit”.
In reference to capital, Guyanese also have access to capital largely because of Guyanese immigrants residing in North America and Europe.
But what has been keeping Guyana’s economy from making great strides? The answer is simply Guyana’s political framework in reference to taxes and lack of liberalisation of the economy.

THE TAX SOLUTIONS
Why taxes? High taxes are a disincentive to investment because they limit returns and the disposable income of consumers (and contrarily creates an underground economy). This results in products being expensive and demand being low.
A summary of Guyana’s tax rates are as follows: 16 percent VAT, 33.3 percent income tax and 200 percent tax on new cars. This is in addition to the tax on gasoline and fuel which directly raises the costs of transportation of goods and services.
A simple aphorism concerning taxes is: “Higher taxes constrain economic activity and lower taxes free up and foster economic activity”.
1. An amicable taxing system for Guyana that would stimulate the economy would be the elimination of the income tax, reduction of the VAT to eight percent to be prorated, with four percent going to the central government, two percent going to the regional government and two percent to the municipal government, an eight percent tax on fuel to go directly for road maintenance and road building, and an eight percent tax on telecommunications to go directly for the funding of the security forces.
2. As for duty on vehicles, it ought to correlate to the weight of the vehicle and the carbon emissions of the vehicle; in other words, since heavy vehicles cause more damage on the roads, they ought to pay accordingly. Likewise, if a car emits more carbon than another it ought to pay more, since it is contributing to pollution much more than a car that doesn’t emit as much. Additionally, 50 percent of the duty collected on vehicles should go towards infrastructural projects. At yearly car inspections this will remain the criteria for car inspection with the monies collected being remitted for the same thing. This will allow for a consistent source of funds for the upkeep of Guyana’s roads. Mechanics will benefit since new and safer cars will be imported, providing them with increased skills in the repair of these vehicles. Old cars will gradually be removed from the roads.  All hybrid cars will be duty free.  Alternative hydrogen cells should be installed in older cars.

CONCLUSION
Emphasis needs to be placed on making the political framework as it relates to taxes and liberalisation of the energy and telecommunications sectors (this will be in a follow-up column) more conducive for entrepreneurs. This is the only way to harness the factors of entrepreneurship and capital which will make Guyana a prosperous country.
We have called many times for a complete review of our entire tax system with the goal of streamlining collection and expenditures.  We the citizens feel the tax noose around our necks is getting tighter.  We are not sure how long more we can take the squeeze.   Until next time, “Roop”

Send comments to peter.ramsaroop@gmail.com

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