THE LOWERING OF VAT DOES NOT HELP THE CONSUMER

Nov 21, 2017 Letters

Dear Editor,
With the reduction of the Value Added Tax (VAT) from 16 percent to 14 percent, has the consumer benefitted? A survey done on products/items sold on the market has revealed that the expectation that the price of the product will decrease by two percent has really not materialised.
Consumers continue to pay the same price or even higher but hardly has there been any decrease.
What indeed has happened is as follows: an item costs $500, hence VAT at 16 percent will be $500 + VAT $80 – $580. A reduction in VAT to 14 percent will be $500 + VAT $70 – $570. However, the price either remains at $580 or it increases beyond $580.
In order to maintain the price of $580, the cost of the item is increased from $500 to $509. At $509, and VAT at 14 percent will result in the price at $580. The Guyana Revenue Authority (GRA) now receives $71 by the reduction by two percent. The consumer does not benefit from a $10 reduction since the base price of the item increases, and the selling price remains at $580.
Wearing my economics hat, the consumer is now on a lower indifference curve. Is this a better life for one and all?
The emphasis of this article is to highlight that in decreasing VAT, the Government’s revenue will be less, the consumer will continue to pay the same price or even higher. So, the talk that VAT should be reduced to 12 percent will certainly not help the consumer.
What in effect should have happened when this tax was introduced, instead of starting at a high of 16 percent, it should have been 8 to 10 percent, and as the need arises, possible increases.
A lower VAT at its inception would have resulted in fewer tax evaders and more revenue for the GRA.
I will close by asking my readers to check to see if the Daily Chronicle Newspaper was reduced from $80 and $140 respectively, as a result of a decrease in VAT by two percent.
John Seeram

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