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Vaticinate the VAT

Aug 04, 2016 Features / Columnists, Peeping Tom

There used to be running joke about the taxman taxing any and everything in Guyana, down to your underwear. In fact, underwear does attract VAT.
The tax net has been extended even to wagers. Persons making a friendly bet have to pay taxes on their winnings. The interest rates paid by banks on savings are so low that it makes little sense placing your money in the bank. But even the two small cents that pensioners earn in interest are subject to a tax called a withholding tax.
VAT has been an efficient tax for the government. But there is a great deal of cloudiness in some areas as to how this tax applies to certain services.
A public officer was recently under investigation by the Special Organized Crime Unit. It is said that he is a major dealer in phone cards? Is the sale of phone cards subject to VAT?
The sale of phone cards, if you have the capital, can be highly profitable once you can sell millions each week. The large dealers are able to do. The small shops also do brisk business.
The cards are a form of credit.  This is one way of looking at it from a financial perspective. Another way of looking at it is to decide whether it provides a service to the customer or are used to pay for a service?
These ways of looking at phone cards have tax implications
The issue is a controversial one, not just here in Guyana, but in other parts of the world. Given the controversy that this issue is likely to generate, it would be best if the courts can be approached to hand down a decision on this matter. To leave this issue to an administrative decision of the Guyana Revenue Authority is to open up a hornet’s nest.
But the local courts may not even have the final say. This matter may end up all the way to the Caribbean Court of Justice.
Phone calls are subject to VAT. Each month, religiously, the phone company bills customers for VAT for calls made. The phone cards only allow access to make calls. They do not provide a service per se. They allow you to be billed upfront.  In other words, phone cards do not provide a separate service. They are merely a form of money in which you pay for your calls.
Should someone pay VAT for their phone calls and then on top of that have to pay VAT on the cards which they use, technically- speaking, to pay for the call? It is not a simple issue but it has implications for those who sell phone cards.
This brings us to the second bone of contention. There are companies and individuals in Guyana who purchase massive amounts of phone credit each week and then unsell this to other customers. There are some major sellers who sell as much as twenty million dollars per week in phone card sales.
They sell back to other dealers who in turn sell to the small shops.
The commissions are very low but because volumes are high the shops and everybody make a handsome small piece through the sale of phone cards. Each seller earns a commission. So are these commissions subject to VAT?
The persons earning the commissions are required to pay taxes on their profits or, in the case of individual sellers, on the commissions they earn. So should they be taxed doubly by having to pay VAT on sale of the cards?
These are important issues which have to be settled and settled definitively because of their likely impact on the economy.
The revenues from telephone calls are astronomical. It is one of the large areas of spending in the economy and this usually makes it an attractive proposition for the taxman.
There, however, are important principles which must be determined. Do phone cards provide a service or are they simply monetary devices of prepayment for a service which is already subject to VAT?
Second, what happens to the margins of phone card dealers and shops if they have to pay VAT on their sales?
What happens if the GRA begins to make VAT on such sales retroactive? We will have a crisis on our hands because a number of small shops were not charging VAT on their phone card sales and simply cannot afford to do so now.

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