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1ST DECEMBER 2005
MEDIA RELEASE
INTRODUCTION OF VAT IN ITS PRESENT FORM WILL RESULT IN SUBSTANTIAL RISE IN COST OF LIVING

Guyana has the highest personal and corporate tax rates in the Caribbean. There is every indication that the introduction of the Value Added Tax (VAT) in its present form, at a rate of 16% and a threshold set at $10M, will place a further and unbearable tax burden on the Guyanese consumer and jeopardize the viability of the country’s manufacturing, business, tourism and export sector.

The Private Sector Commission is already firmly on the record in support of VAT. The Commission, however, holds the view that VAT must be introduced in conjunction with a reform of the existing tax system and only when it can be established that the introduction of a VAT will not result in an added tax burden to an already overburdened country.

In spite of the publication of the Regulations for the implementation of VAT, there remains an almost total absence of information on how the tax rate was arrived at and on the probable impact of the tax on the consumer.

On reviewing the still very limited information placed at the public’s disposal on the government’s model for calculating the tax, the Commission has come to the conclusion that the tax, in its present form, will result in a significant increase in the cost of living to the average consumer.

The two examples set out below will serve to demonstrate the devastating impact that the introduction of VAT will have on the cost of living to the consumer if it is implemented in its present form.

The first example shows that under the current tax system a $100 domestic phone call is subject to a telephone tax of 10%, whereas, under the proposed VAT, the same phone call will pay a tax of 16%. The consumer will, therefore, pay an increase in price of 5.45% or an additional $6 while the government will benefit from an increase in revenue of 60%.

Example 1 : Telephone calls

Note that this simplified example applies to local and overseas phone calls only. Rentals and additional services provided, which were previously not taxed, will now be subject to a 16% VAT.

The second example shows that after the introduction of VAT, a kilo bag of flour at a manufacturer selling price of $54.55 will cost the consumer an increase of 7.28% or an additional $5.28, while the government’s tax benefit will increase by just under 100%.

Example 2 : 1 Kilo bag of Flour

There is no indication that corporate and personal income tax will be reduced when VAT is introduced. The government’s statement that the VAT and the Excise Tax will be revenue neutral, does not stand up to careful scrutiny and cannot be taken at face value.

It seems clear that a wide range of basic foodstuffs such as bread, rice, sugar, beverages and baby foods, will increase in price in some cases by as much as 30%. There are likely to be similar increases in essential service such as telephone rates, public transportation, healthcare and most professional services.

Another issue is that of an inequitable application of the Excise Tax, as in the case of alcoholic beverages. Imported beer will be taxed, based on its CIF price, at 37.93%, while locally produced beer will be taxed, based on its consideration (selling price less VAT) at 45.29%. This places a greater burden on local manufacturers than on importers.

The declared purpose of VAT is to widen the tax base nationally and reduce the incidence of tax evasion with the net effect of increasing government revenue while reducing the level of taxation across the board for the consumer. There is no evidence to support that this will be the case.

In fact, the government’s introduction of an Excise Tax in tandem with VAT which does not exempt basic items of consumption for the ordinary consumer and which makes no provision for a reduction in personal and corporate taxes, negates the entire purpose of the VAT, penalizes the consumer and is a serious threat to an economy already in recession.

The PSC is also concerned about a number of other disquieting features with regard to the application and enforcement of the tax. The Regulations grant to the Minister and the Commissioner of Inland Revenue excessive and arbitrary powers which the PSC believes are unfair and punitive and which would not withstand judicial scrutiny if put to the test.

The Commission has already submitted to the government, a comprehensive memorandum with recommendations for the introduction of VAT including a comparative analysis of other countries where VAT has been fair and equitable and successfully introduced. Almost all of the Commission’s recommendations have been ignored.

The Commission holds the view that the introduction of VAT provides the opportunity to reform the country’s tax system so that it may serve as a catalyst for economic recovery and growth. We ask that the government, therefore, take time to give further examination to our recommendations.

We urge that the government call a halt to this rush to introduce this tax, postpone its introduction for further consideration and evaluation and allow the country the time and opportunity to be the ultimate beneficiary.