An exercise in futility: Trying to prove VAT reduces prices

By Dr Clive Thomas

Every Guy-anese realizes from his or her own daily living experience since the beginning of 2007 that the introduction of the VAT and excise legislation has precipitated much of the inflation in the price level that they have had to face ever since. Nonetheless, with amazing stubbornness the Guyana Revenue Authority (GRA), GINA, other government spokespersons and technocrats employed by the state have sought to “prove” to Guyanese through the public media that the introduction of the VAT and excise tax should lead to a decline in prices and deflation, not rising prices and inflation.

As the so-called “proof” goes, the VAT and excise tax is noted as having replaced existing consumption taxes, which for most items had a higher rate of taxation. Further, the VAT tax is paid only on “value added” at each stage of the production and distribution process. There-fore, as a particular business pays higher input costs because of the VAT tax, that business can claim the VAT taxation back from the GRA as a legitimate credit. The price of the item should consequently rise by the VAT tax (16 per cent) less, the more than likely, higher consumption tax for which the VAT is a replacement.