Dear Editor,
A visit to Guyana during the festive season was quite revealing about the continued failure of successive governments to understand the dynamics of Guyana and the difficulties in administering the affairs of the country. Some of the difficulties are self inflicted while the others relate to varying degrees of dishonesty on the part of person(s) directly executing the affairs of their office as well as individuals in the commercial sector.
The recent implementation of the Value Added Tax (VAT) in an attempt to widen the tax net is for example one area which when tested one year on may be quite revealing of such difficulties if studies and stringent monitoring is done by the likes of Christopher Ram and the Institute for Development Studies.
It is a well known fact that the government needs significant increases in tax revenues and to broaden the tax base to properly deliver the necessary infrastructure and services of the country. The government, however, seems not to grasp the culture of our people with regards to taxation. It’s a cold hard fact that a vast majority of Guyanese avoid paying all forms of taxes unless directly taxed with no alternatives (Stamp Duty, PAYE and Airport Taxes among others). Simple National Insurance Scheme (NIS) deductions have been a pain for the NIS to collect over the years, hence so many judgments in courts against errant parties and numerous letters to the editor from individuals seeking redress from the NIS after employers failed to hand over deducted contributions from their wages and salaries. I personally know of an elderly individual who was killed by a vehicle on the roadway after years of making one of his several trips to the NIS Offices and his former employer in an effort to have his NIS deductions fully paid up.
Post-independence governments seem not to remember or pay heed to the adverse effects of certain policies. For example, the restriction of specific items in Guyana in the late 70’s through the 80’s realised a surge in unofficial ports of entry for goods while creating a new breed of millionaires from the Pomeroon to the Corentyne for which the government treasury didn’t even burp. Restricted items were sold and consumed out of the authority’s sight and this time Robin Hood came in the form of wheaten flour. History by now should have taught us something about policy implementation (especially tax and trade) in Guyana, a country with little or no control of its borders and where informal trade and purchases represent a significant portion of daily business transactions.
Further, the government seems not to understand the untold damage that has been done since independence to the Guyanese psyche which has virtually created a self reliant and self sustaining people while turning Guyana into one of the most liberal states (anything goes) in the Western Hemisphere. Government’s control of the state has gradually eroded over the years and as such sensible administration and flexible policy implementation measures should be pursued if they are going to successfully rein in individuals not paying their fair share taxes while reducing the burden on steady contributors such as Banks DIH and DDL.
I agree with the broadening of the tax base through the implementation of the VAT. However, based on our consumption patterns and the state of the various sectors in the economy with regards to their past and potential for growth, the introduction of VAT at a rate of 16% on various items is too high to say the least irrespective of the removal of the 30% consumption tax on imports. Most consumers (businesses fall into this category also) will simply ask why should they pay $160,000 to Government on $1,000,000 worth of taxable purchases.
Guyanese are a far more ‘rational’ people than what some policymakers may think and moreso they do not function using the assumptions of any particular economic, trade or taxation model, especially those prescribed for countries where taxation is as sure as death. In my opinion, VAT rates on certain items or services need to be flexible based on rational evaluations of use (necessity, pleasure, educational) and the ability of consumers to secure the said items from sources other than VAT registered businesses. In essence, VAT rates must not directly increase trade (an argument of trade creation vs trade diversion) for the unregistered and the smugglers while straining the resources and personnel of the disciplined services who already have a hard time saving our fishermen from the pirates.
Government must not forget that an entire generation of Guyanese has been brought up on poor systems, no systems, avoiding systems and tweaking of systems for personal gain. In Guyana you don’t solve problems, you get around them: No electricity – we buy generators or use fish hooks on overhead wires, No water – we buy black tanks or break mains, No foreign exchange available at the bank – we go to America Street etc). As such policy makers must understand what they are up against as there will always be some mysterious being(s) or force(s) working against policies. The administration of Guyana’s affairs is no walk in the park and if blindness were to prevail then Guyanese will get around any obstacles created by VAT.
I however have some reservations about the effects of VAT in Guyana:
1. VAT may actually cause a contraction in growth of compliant businesses and in some cases result in layoffs in the short run.
2. VAT will provide zero interest short-term financing to business owners and allows for overdrafts to be paid down which I don’t think was the intention.
3. An increasing number of businesses will not pay over to the GRA in a timely manner the full amount of VAT collected and some may even have problems writing cheques from the very overdraft accounts upon which the VAT was deposited.
4. The GRA may spend increasing amounts of time in court attempting to collect VAT from registered businesses (if they really want to collect the VAT in full).
Yours faithfully,
Adam Lynch
