The pressure is on!

Nov 29, 2016 Features / Columnists, Peeping Tom

If you are a poor person and you go to the supermarket to purchase your monthly groceries, the least you are going to spend is about $30,000 or US$150. You know you will run short of items before the month is out and you will have to buy things, as you get more money, from the street-corner shop.
Out of the $30,000 that you spend, $20,000 will be VAT-free items. It means that at most you will have to pay about $1600 in VAT per month. Come next January, you will save $200 Guyana dollars or US$1 on the reduction that the Minister of Finance has announced in the Budget.
But you will end up having to pay about $1400 more in VAT for electricity because the average electricity bill – whether the government wants to accept this fact or not – is about $10,000 per month. Anyone who is paying less will receive a visit from the GPL crew to find out whether their meter is malfunctioning. You will also end up paying, on average, $600 more for water per month. The poor man ends up no better off, even with the increase in the threshold.
The government should stop increasing the income tax threshold. It represents a subsidy to the private sector. The government is effectively helping the private sector increase the disposable income of their workers without any serious increase on the part of the private sector in paying wages. This is the function of the increase in the income tax threshold.
The Budget is a decent effort from the Minister of Finance. It is no different in its philosophical approach from the Budgets which were produced under the PPP/C and which the present Minister of Finance was involved in formulating.
The emphases are the same: infrastructure, public spending, increasing the income tax threshold as against making a real dent in the wage debt.
The approach to tax reform is timid and cautious. This government should be aiming at smaller bureaucracy, lower taxes and reduced concessions. It has this time tried to keep its promise to reduce the VAT.
It would have been better if the VAT was not reduced, but on top of the wage increases which were given, a compensatory wage increase was given. A two percent reduction in VAT is not going to affect prices in the market place. The poor man or woman who spends $20,000 each month at the grocery is still going to spend that amount for the same (or less) basket of goods.
The problem that the poor person faces is that they are not confronted with less disposable income. The minimum wage is now $255 per hour. A one litre bottle of soda in the shops is $260. This means that the minimum hour wage cannot even buy a one litre Pepsi. The price of the one litre bottle of soda is not going to be reduced with the 2% reduction in the VAT. It will cost the storeowners more than the 2% to effect the reduction.
Of course, with the $10 tax on local bottles, it means that there is an increased cost for soft-drink manufacturers.
The approach of the government is cockeyed. For any reduction in the VAT to be passed on, it has to be by 5% or more. Any VAT reduction less than 5% should not be implemented. It will not filter down to consumers.
On top of this, the poor UG student who rents an apartment in which the rental includes the electricity and water will now have to pay a higher rent.
If the government is exempting basic food items from VAT. What sense does it make then to impose VAT on two items which are more important than those basic staples? Why put VAT on water and electricity. This makes no sense. This will hurt the poor more than it will hurt the rich. No home pays less that $1500 per month for water. This means that every single home will be subject to pay the VAT on water. The pressure is on! Santa Claus had better have something nice in his Christmas bag this season. A 50% increase in salaries for 2017 perhaps?

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