VAT and the numbers game

Dec 15, 2016 Features / Columnists, Peeping Tom

Guyana Power and Light Inc. (GPL), the local electricity company, has reportedly confirmed that 80% of its clients use $10,000 or less in electricity per month. This is a staggering statistic and one that is surprising, knowing the high cost of electricity and the size of Guyana’s middle class.
The numbers confirmed by GPL suggest that the poverty rate may be far higher than it is estimated, or that Guyanese are the greatest conservationists in the world. It is hard to really to come to grips with the fact that more than 80% of Guyanese burn less than the equivalent of US$50 per month in a country which has the highest electricity tariff in the Caribbean.
It is hard to understand how a power company can survive when 80% of its consumers pay less than US$50 per month in tariffs. But if GPL says so, who is the Peeper to say nay!
VAT will from next January be applied to consumers whose electricity bills are more than $10,000 per month. This means that, assuming consumption remains the same, the tax will at the maximum only apply to 20% of the population.
Yet, one of the reasons adduced for the implementation of VAT on electricity was that it was intended to widen the tax base. It may have widened the base, but not by much, since eighty per cent or more of the consumers are not going to be captured in the VAT net. This defeats the argument that VAT on electricity is an efficient means of collecting revenues; it is not.
The second argument is that it will encourage conservation. If the government wanted to encourage energy conservation, it should have a different type of traffic system, one in which there is an incentive to consume less. Taxes are not the means to achieve this end. Taxes on electricity use will not encourage much conservation, since only 20% of those using electricity are likely to be taxed.
I expect that Guyana Water Incorporated will soon issue a statement indicating the percentage of its consumers who use less than $1500 per month or less. The government should be applying a low tax on a wide base. This means it should be going after all of those persons who are enjoying free electricity at this point of time and those who are not paying for water. This will widen the base and increase the tax net at the same time.
The government keeps harking back to the subventions it has to pay to the Guyana Sugar Corporation. It is trying to suggest that it has to raise taxes in order to raise the monies to bail out the entity, and do all the other things it is doing. But how accurate is this assessment?
The government is spending six billion dollars on the Ministry of the Presidency. What does that Ministry produce? The government is spending almost 2 billion dollars on the Ministry of Business. Yet the government has had no major investment in the country since it came into office. It is spending billions more in other places, but finds it hard to bail out Wales Estate to the tune of 1.9 billion dollars and thereby save thousands of jobs. Yet it is floating a bureaucracy with billions each year.
If the government wanted to increase its revenues, it should have reduced the VAT to 10% and applied it to all items, period. No exemptions, no zero rated. Everything should be a flat 10%. It is not helping poor people when it reduces the VAT by 2%. The savings will not be passed on. And just like how the poor use rice and milk which are now VAT-free, the rich also use rice and milk as well as all the other items which are VAT-free. In fact, the rich because of their higher incomes use more of these items than the poor.
The tax measures in the Budget were not properly thought out by the best Cabinet we have ever had. Meanwhile, the GPL is introducing forced conservation. It is called ‘blackout.’ It is affecting not just the 20% that pay over $10,000 or more each month. It is affecting everyone.

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