The parliamentary opposition will soon be approaching the Donald Ramotar administration on reducing the 16% Value Added Tax (VAT), saying that while the government may lose revenue, the tax burden on citizens must be lifted.
Both A Partnership for National Unity (APNU) and the Alliance for Change (AFC) favour a gradual reduction, pointing out that a careful examination must be done to determine where the money would come from—within and outside of the budget—to sustain a reduction of the tax.
VAT and Excise Tax raked in $53 billion in revenues last year—an increase of 9.7 per cent over the takings of 2010. In 2012, the GRA is expected to bring in 6.9 per cent more in VAT and Excise Tax than in 2011.
Shadow Finance Minister Carl Greenidge told Stabroek News last week that APNU, in its Vision 20/20 plan, said that it would want in the first instance to reduce VAT in stages to 10%, depending on how revenue is affected.
“VAT is at the moment $16 [out of $100]. The proposal is that it moves to 15 percent immediately, whilst we look to see what the revenue situation is and then we decide how close we can move it to 10%, and whether we can do that immediately,” he explained. He said that whether this process takes place before the budget process is done or after depends on the PPP/C.
“We will raise it in the course of looking at the estimates but I cannot tell you how they would react when we engage them in any way,” Greenidge said.
Commenting on the supposed revenue neutrality of the VAT, Greenidge said, “The government implemented it and it yielded far more than they had planned and far more than they had undertaken to collect and yet they have never tried to reduce it.” He added, “The point is that the time at which you were levying the VAT, you made a promise with regard to revenue neutrality and you cannot say, after the fact, that it is replacing other taxes which had been removed before. If the government decides it wants to raise taxes, it must do it and we must know that they are doing it to raise more money. You can’t say you are raising it for one thing, based on recommendations and studies and then you do something different and refuse to remedy it. This is a question of a breach of faith. You have abused your power because you happen to be in a position and then you decide not to [remedy it].”
During his budget debate presentation last Tuesday, Greenidge said that while government’s proposed increase of the income tax threshold from $40,000 to $50,000 a month is most welcome, it is not sufficient. “The question of VAT and its reduction in stages is one that I would commend to the government. Not only had the government committed itself to implementing a rate that was not a net increase intake, but it also is a heavy burden to taxpayers and we need to ensure that this rate is effected,” he said.
Past the elections, AFC has continued its campaign for a VAT reduction and Chairman Khemraj Ramjattan is clamouring for at least a reduction to 14%, if a higher cut is not impossible immediately. “We feel that [a reduction in the VAT] will cause, of course, loss of revenue. There may be a loss of revenue and I use the word ‘may’ here, because we believe that with a reduction, to say 12 percent, you are going to have lots more people paying VAT because of the reduced rate,” he said.
“It is like when a good becomes reduced in price, lots more people buy it, and because of more people buying the goods, you still make the profit at a reduced price, similarly with VAT,” he added.
According to Ramjattan, a reduced rate would hinge on better enforcement, which he argued could recapture potential revenue already lost. “We need [the Guyana Revenue Authority]’s Enforcement Section to enforce VAT at 12% and we are going to get back what we might lose,” he noted.
He also argued that a lower tax could also see greater consumer spending. “Value-added is a tax that affects the consumption patterns and so when people get more disposable income they are going to buy more as a result of the reduced VAT,” he said.
Asked what timeframe the party would like to see for the reduction in the VAT, Ramjattan said that legislation could be drafted within a week, or after the budget, since all it would require is an amendment to the VAT Act. However, he cautioned that the parties must ensure that they can find the monies first in the budget. “…We can do that and then we can apply it from say June [2012]… But of course you will have to find the money…it will have to be sustained,” he said.
Ramjattan also said reducing the high corruption levels and curbing spending on questionable projects, such as the Marriott hotel, are some of the avenues that could be used to find the additional sums to support a reduction in the VAT. “These static accounts that are all over the place, the monies from NICIL…billions and billions of dollars…put it in the Consolidated Fund… [you have] the Lotto Funds and so many duty free concessions given away to contractors…huge amounts…and all of that could come up to the billions which would be foregone with a reduction of VAT,” he said. “It is gettable and we intend to fight very hard for that,” Ramjattan added.
In its 2011 Manifesto, the PPP/C said it would undertake “continuous review of our taxation system including the VAT, to ensure it remains competitive and is effective in promoting growth, initiative, and welfare, by identifying and implementing further reforms to broaden the taxpayer base, reduce effective rates especially to the most vulnerable, and raise administrative efficiency of the Revenue Authority.”
Its proposal was a shift from the position taken by then President Bharrat Jagdeo in the latter half of 2010, when he said that VAT was not a burden and was therefore not in need of revision. His eventual successor, Ramotar, committed to a review of the tax system and last December established a three-person Tax Review Committee to undertake this task. However, three months later, the committee is yet to meet and start its work. Sources noted that one of the persons on the committee had expressed reservations, in light of the many criticisms levelled against it. Stabroek News has learnt that up to one month ago, the terms of reference had not been drawn up as yet for the commencement of the committee’s work. Efforts by this newspaper to speak to its members, businessman Clifford Reis, economist Cyril Solomon and accountant Ronald Alli have been unsuccessful.
In early February Minister of Finance Dr. Ashni Singh had said that it was “early days yet” in the work of the committee and that he had not expected the committee to complete its work before the presentation of the 2012 budget.
