Introduction
The statement made by Chairman of the Private Sector Commission (PSC) in a letter published in the Sunday Stabroek of December 30, 2007 “reiterating” the position of the PSC that it wanted the government to continue the present and unjustifiable 16% VAT rate and to apply it to reforming (reducing?) income and corporate taxes has shocked not only the general public but even members of the business body for its insensitivity to the plight of scores of thousands of Guyanese. No one would argue against the need to lower the harsh rate of personal tax even after the 20% increase in the personal allowance announced by the President for 2008. But to ask that those either off or at the bottom rung of the economic ladder and consumers currently reeling from a rate of inflation not seen in this country for over a decade should finance those fortunate to own shares in companies, either shows how little the captains of industry care about their workers – let alone those too old or unable or ill to find employment or because for example they have to look after close family – or how little they appreciate the workings of the economy.
Tax rates and thresholds are only relevant to those who earn or declare taxable income. Even when the threshold was $28,000 per month, a large number of employed persons both in the state and private sectors earned less than that amount. The increase in the threshold and lowering of the tax rates would therefore bring no relief to them, nor to those who are unemployed, nor those who have just been awarded an increase in pensions taking them to $6,000 per month. Nor those in receipt of public assistance of $4,500 per month, among whom are single parents and persons medically unfit to work. Is it the considered view of the PSC that out of these princely sums, these fifty thousand persons – to use the President’s numbers – should continue to pay VAT at 16% on the flour they use, cooked foods at working class restaurants or baby foods, which the PSC now asks to be used to pay for lower rates of corporate tax and income tax for those earning relatively so much more than them?
Private sector rhetoric
Mr. Correia’s letter in which he subordinates the “increase in the cost of living [which is] on the mindset of most Guyanese at this point in time” to the country being “better positioned for economic expansion than ever before” is better suited to political rhetoric than practical reality. How could someone holding such an exalted position not be aware that for seven consecutive years from 1991 to 1997 growth rates never fell below 5.1% and the average annual growth was 7.1%? Instead of expressing concern about excessive taxation he enthuses about the “impressive” collection of taxes – a statement that even the tax collecting agency has not made.
Mr. Correia’s letter was prompted by an editorial in the Stabroek Business of 28.12.07 which questioned whether the PSC’s silence on issues having a direct bearing on businesses might have been due to a fear of reprisal or victimisation. His defence of the silence as reflecting a cautious and more mature approach to engaging the political administration raises the further question as to when the PSC came to this recognition. Was it when the President put aside his script at the 2006 GUYEXPO to lambaste Correia (as immature?) for raising the most dominant issue at the time, which was followed by an absence of contact between the PSC and the Government for several months? Since it is clearly not immature to robustly advance the cause of one’s constituents, is Correia in fact admitting that, that would be unacceptable to the Government or that the obligation to act maturely rests on one side only?
Tough questions
My concern about the lack of depth in Mr. Correia’s letter which I understand was issued with little or no consultation with members is heightened by his assertion that the PSC’s Technical Bulletin contained their analysis of the performance of the economy for the first six months. Even the Bulletin itself admits that much of its data “was drawn from the Mid-Year Report 2007 which was recently released by the Ministry of Finance”. There was absolutely no analysis and the Bulletin was essentially a rehash of the Mid-year report issued by the Ministry of Finance, tables and all.
While the Statement issued by the PSC after the meeting with the Minister in December stated that he “provided an update on recent developments in the economy and on the outlook for the remainder of the year (there were twelve days left of the year), and responded to a number of questions asked by the PSC delegation”, neither the PSC nor its Chairman would volunteer whether the meeting at which the PSC was represented by its insiders asked a single searching question of the Minister, such as why the Minister did not give the latest information on VAT collections or why his mid-year report was not presented within the statutory timeframe. Is it now part of the more mature approach not to ask why the Statistics Bureau suddenly stopped publishing monthly Consumer Price Index figures since July when the year-to-date (January-July) price change was a whopping 13.8%? Or why the Bank of Guyana has not issued its half-year report as it had done for the past several years?
Why the secrecy?
Instead of allowing the repetition of statements in circulation about the publication of important information on the economy, the private sector and indeed all who are interested in the economy need reassurance that the Ministry of Finance has not given any instructions to the Bank of Guyana (which ought to enjoy considerable independence) and the Statistics Bureau (which falls within the portfolio of the Minister of Finance) to delay the publication of information vital to understanding the economy. Regrettably, the PSC does not help its image by its failure to make available to its members or the public a copy of the letter it delivered to the Minister prior to the December meeting, raising suspicion that this was part of an agreement with the Minister.
In fact the tendency by the Government to make announcements not based on the technical work done by professionals but on what might be considered politically acceptable or wishful thinking is assuming dangerous proportions. Is it realistic to expect a Bank of Guyana which has been reluctant to demonstrate its independence to publish a half-year report that contradicts in any significant way the one sent out by the Minister?
And more troubling is the President’s announcement at his first press conference for 2008 that the inflation rate at year end was 13.9%. Sitting with the President was the Minister of Finance who came into the Government as a technocrat and who had only some weeks before announced a 12.2% inflation for the half-year, a level which according to the Statistics Bureau increased by about 1 percentage point in July, taking it to over 13%. Would the Minister or the Statistics Bureau tell the President that neither time nor inflation has stood still since the end of July? The President’s statement can create a huge problem for the Head of the Statistics Bureau Lennox Benjamin if the results of the professional work of the stats Bureau were to come up with numbers that are significantly different from those announced by the President.
Obsequiousness
It goes without saying that the PSC and its leadership ought to be mature but for them to overlook key issues in order to be accepted as engaging the political administration would betray a sad obsequiousness. Tax rates are indeed a critical issue but what the PSC seems to be unaware of is the extent of the difference between nominal rates and effective rates of tax paid by companies and the self-employed.
Some time ago I surprised a key policy formulator with data that showed that the effective rate paid by a particular sector was just half of the 45% nominal rate, a situation which is unlikely to be an aberration or unique to that sector. Then there is the ext
ensive regime of tax holidays under the Income Tax (In Aid of Industry) Act, particularly since the amendment to that Act in 2003 or the several tax and other concessions that are given to a wide range of companies which are exploiting our natural resources for doing us the favour of paying our nationals wages that are well below international average. And can we ignore that huge body of taxpayers who continue to cheat the system and resent any attempts to bring them into the net?
Mr. Correia may not be aware that Guyana has an extremely attractive regime of export allowances which is probably a breach of the WTO Rules and which has long since been abolished by some regional countries including Trinidad and Tobago. Or he may be conveniently ignoring the fact that our tax laws treat unearned income and capital gains more favourably than the income earned by employed persons. And that under former President Desmond Hoyte the estates of those who spent their lives evading taxes were relieved of any death taxes, while removing such pro-poor allowances like child allowances and mortgage interest.
It is unlikely that the PSC would be interested in reversing the anti-poor, pro-rich nature of the tax laws but should the Government and labour not be interested in at least drawing attention that it cries out for action? What the PSC should be interested in however, even at the risk of being considered immature, is to hold the Government to its commitment to make VAT revenue neutral and point out the inconsistency of the Government’s position on this commitment. Surely the PSC cannot forget the President’s words at the GUYEXPO 2006 when he said “We said from the very beginning that VAT should be revenue neutral, we’re not looking to increase the collection of taxes, increase [taxes or] the tax base with the introduction of this tax.” Now that the money has poured in by more than even critics had predicted, the tune has changed to “VAT is revenue neutral but the increased collection was mainly attributed to the expansion of the tax base”. (Italics in this paragraph mine).
Conclusion
Of course, the commitment that VAT would be revenue-neutral was made to the country at large and it is the entire country that should insist on the Government honouring that commitment. But the PNC-R now hardly pretends to be an effective opposition and the labour movement is struggling for its existence, let alone its independence leaving a few individuals, Red Thread, the consumer group led by Eileen Cox and political leader CN Sharma to raise their voices against the harsher elements of the VAT.
If the PSC wants to reiterate anything it should be to demand meaningful tax reform and proper expenditure management. If it does not do so urgently it will find or indeed is already finding – to borrow from Murphy – that expenditure expands to meet the revenue collected from VAT and other taxes.
An underlying failure of the PSC over the years is partly the result of the serious conflicts facing its leaders as they seek simultaneously to further the interests of their often private businesses and the wider interests of their constituents. Unless private sector organisations change the rules of disclosure of their company’s interests in matters with the Government while ostensibly negotiating with it, give their CEOs a more leading role in advocacy (remember Pat Thompson?), promote more openness and transparency and strengthen the quality of their leadership, they will continue to find that they can only engage the government on its terms, and those will seldom coincide with the interests of the PSC’s constituents.