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REDUCING VAT IS A TOUCHY ISSUE
On January 1, 2007, Guyana joined a number of other countries in the Caribbean and the world and introduced the Value Added Tax (VAT) as part of the Government’s plan to modernize and streamline the taxation system. It was introduced together with an Excise Tax (ET) which levied taxes on motor vehicles, petroleum, tobacco products and alcohol.
VAT along with ET has replaced six existing taxes, including the Consumption Tax. VAT was invented in the 1950s and it is now in operation in more than 120 countries worldwide. It is a transparent tax system that makes Guyana more attractive for investment in that it applies only to the domestic consumption of goods and services.
In Guyana as in other countries, VAT was introduced as a means to broaden the tax base, thereby spreading the burden of taxation more equitably; to establish a fair system so as to ensure more of the people who benefit from public services also contribute to paying for them; and to create a stable revenue source than previous and existing taxes. Unlike corporation and personal income taxes, VAT does not tax investments and savings.
Since its implementation, VAT has been good news for Guyana. In 2015, it is estimated that $35.5 billion in revenue has been collected from VAT and that amount is expected to increase by 9.9 percent in 2016.However, the reduction of VAT is a very touchy issue for both the government and the opposition.
In the 2011 election, the opposition had promised to reduce VAT, but did not. On the other hand, in the 2015 general election, the government when in opposition had promised that if elected, it would lower VAT from 16 percent to 14 percent within its first 100 days in office. It did not happen.
Upon assuming office, the government claimed that it found both the economy and public finances in worse shape than it had expected. Under enormous pressure to defend the government’s decision not to reduce VAT, the Minister of Finance pleaded with the people to be patient until the government gets a handle on the economic situation.
However, the government did remove a few food items from VAT in the 2015 budget.But there appears to be some confusion between the Minister who is opposed to the reduction of VAT and the President who earlier in the year had stated that VAT should be lowered.
The Tax Reform Committee had proposed that the tax on VAT be lowered to 14 percent but the Minister opposed it and instead sought guidance from the International Monetary Fund (IMF) to ensure that it is the right decision.The reduction of VAT does not require the expertise of a rocket science. But seeking the advice of foreigners on how to manage the economy and the affairs of the country shows that the government does not have confidence in itself or in Guyanese intellectuals.
The average VAT rate in most countries in the Caribbean is around 16 percent which means that Guyana will have the distinction of levying the lowest rate if it reduces VAT by two percent as promised.
Indeed, the consensus is that the current VAT rate is too high and should be reduced. While some believe that the Government should reduce VAT, others claimed that it was wrong for the government not to fulfill its promise.
After two budgets, the government has not made any attempt to reduce VAT. In the 2016 budget, the Finance Minister made it very clear that there are no plans to reduce VAT in the near future.
And just a couple of weeks ago, the President put the issue to rest. He said that VAT will not be reduced anytime soon because there is a need to finance GUYSUCO, education and health care and infrastructure.
It is said that honesty is an asset of any society and government. It has often led to a sounder and better-informed democracy. So whether or not to reduce VAT, the government must be honest with the people.
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