AN OIL STIMULUS

Jan 20, 2016 Features / Columnists, Peeping Tom

In recent days, oil prices fell below the $30 mark. That means good news for motorists around the world, except of course in Guyana, where prices at the pump have remained at the level they were seven months ago, when oil prices were trading at three times their present price.
The Big Question on everyone’s mind is why have prices at the petrol stations in Guyana not fallen. This is a question for the government, just as it is for the companies that import fuel. The government’s tax mechanism allows it to reduce prices, but the biggest reduction is likely to come from the decline in acquisition costs from the oil companies. Both must answer as to why Guyanese are still paying over eight hundred dollars per gallon for petrol at the pump. This is a rip-off.
The government has to intervene and try to ensure that the consumers benefit from the reduction. The private sector has been calling for a stimulus package, which is another way of saying there should be increased investment. But the best stimulus that the government can offer is to increase the disposable income of consumers by slashing the price by at least 30%, moving towards a revenue-neutral position. This will bring an immediate stimulus.
Any other investment other than in public infrastructure will not bring such immediate results. It is even questionable whether government spending on public infrastructure has any appreciable effect on the economy.
The government is cagey about reducing taxes. It ought to be. Khurshid Sattaur had his flaws, but he was by far the most successful head ever of the revenue agencies. The growth in tax collection under his watch was phenomenal. Tax collection will increase henceforth, but Sattaur’s achievements in growing revenue collection are never likely to be surpassed.
There have been some inferences suggesting that there are problems with tax collection. A lot of that analysis is faulty. For example, there is the claim that one thriving community pays less in taxes than a poor one. No attempt was made to indicate what empirical measures were used to determine what is “”thriving” or how “poor” came about. Many of the presumptions we make in this country, especially about who is rich and who is poor, are not grounded in evidence.
There was also the analysis that stated that Region 4 pays more taxes than all the other Regions combined. This is to be expected. Region 4 is where most of the productive enterprises, including rice and sugar, are located. More than 80% of the population resides on the coast, the majority in Region 4. Many of the companies that operate in Guyana’s hinterland and rural landscape have their head offices in Georgetown. It is therefore to be expected that the taxes collected in Georgetown will exceed that of all the Regions combined.
This is not a tangential issue. If the analysis is weak, then the policies that flow from this analysis will not be as effective as they should. The attempt, therefore, by the government to widen the tax net, in the context of limited taxable economic activity in the other Regions, will lead to disappointment.
If there is a shortfall in revenue collection, the government will not be inclined to reduce either the VAT or the prices on petrol. Experience is needed in the tax department. Institutional knowledge is needed. That knowledge is on extended administrative leave, awaiting the long promised audit which is yet to be announced.
It is not going to be easy to squeeze more taxes out of Guyanese. This country already has high tax rates. The population needs a reprieve from these high taxes. The reduction in taxes on new vehicles will not benefit the poor. It will benefit the rich, because only they can afford to buy a new vehicle. The ordinary man has to pay almost a million dollars in taxes for the cheapest vehicle. That is where the reprieve has to be directed.
Guyana needs lower taxes and to compensate for these lower taxes by greater production and investment. Reducing the prices at the pump can be just the stimulus needed. But with a government that is circumspect about reducing taxes, this may be wishful thinking.
It is therefore for the oil companies to slash prices because of their lower acquisition costs. But that may not be allowed to happen, because reduced prices by the oil companies will mean reduced taxes for the government.

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