VAT is not to be blamed for the increases in the cost of living

Dec 29, 2008 Letters

DEAR EDITOR,
I refer to two articles which appeared in the Kaieteur News, one on Wednesday, 26th November, 2008 on page 23, captioned “The issues — Sugar workers wages and VAT” written by Mr. Peter Ramsaroop; and the other article, which appeared on Thursday, 27th November, 2008 on page 3, captioned “Suspend VAT for 12 months, reduce GPL Tariff—AFC”.

Mr. Ramsaroop continues to blame the 16% rate of VAT for the increases in the cost of living. I would like to remind Mr. Ramsaroop that reducing the (16%) percent rate of Value Added Tax (VAT) will not in any way reduce the escalating cost of living increases.

VAT was removed from several items, and instead of prices coming down, they went up drastically.
There are numerous examples that can be cited in support of this fact, but I will just mention a few. The second month after the introduction of VAT, a number of items were zero rated, including basic food items, and prices went up for these items.

Further, earlier this year, the Government again removed VAT from another set of items, including some medical supplies and items for use in the fishing sector. Again, rather than seeing a reduction in the cost of these items, prices increased. Gas prices have been reduced and minibus operators have refused to lower their fares.

The bulk of the money for the average person is spent on electricity, rent, food and transportation. In relation to transportation, the tax on gasoline has been significantly reduced, as well as diesel has been zero rated. No VAT is paid on electricity, rent and basic items.

VAT and Excise Tax replaced six taxes, including the Consumption Tax, which for most items had a higher rate of taxation than VAT. Further, VAT is paid only on “Value Added” at each stage of the production and distribution process. When a business pays higher input costs because of the VAT, that business gets a refund of the VAT from the Guyana Revenue Authority (GRA) as a legitimate credit. Therefore, the price of the item should consequently be reduced by the VAT of 16%.

While the profit motive drives businesses, some are out to make a kill. They are taking from consumers through high prices, which has nothing to do with the rate of VAT.

Some businesses find VAT a convenient device for the realignment of prices. When other businesses throughout the distribution chain react in similar fashion, there is a consequential rise in the general price level of products.

In developed countries, as mentioned by Mr. Ramsaroop, the rates for VAT are often changed, not on any rational basis, but entirely to meet the revenue needs of the country.

When businesses begin applying VAT the right way, the full benefits will be felt. I have had the experience of businesses trying to evade the VAT by offering me the option of not paying VAT, so as to avoid the Tax Invoice.

As a leader, you should look for ways to address these issues, knowing fully well the benefits of the tax.
In 2005, the Government and opposition parties agreed in principle for the introduction of the Value Added Tax (VAT) Bill, after its second reading in the National Assembly, where it was sent to a special select committee for further scrutiny.

The views that are now raised by these politicians were already exhausted, so there is no need for me to further regurgitate these issues.

Marsha

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