Dear Editor,
Please permit me to respond to a letter which was penned by Gordon Forte and published in the May 8 edition of the Stabroek News under the caption ‘Why is VAT charged on the full price of goods at each stage of the commercial system?‘
Mr Forte’s letter stated, among other things, that VAT is charged on the full price of goods at each stage of the commercial system, the consumer is paying far above the original cost of goods, and that the distributors pay sixteen per cent on the producer’s full selling price.
He further noted that importers pay 16% on the full Cost, Insurance, and Freight (CIF) value.
Editor, while the Guyana Revenue Authority (GRA) appreciates Mr Forte’s interest in this topical issue, it is clear that he is somewhat misinformed on the VAT system. The GR therefore wishes to clarify these misconceptions. VAT is charged after a supplier adds his or her mark-up to the cost price of the goods being sold. No importer or retailer is expected to charge
VAT on top of VAT.
As an example, if a pair of shoes is imported for $1160.00 by a wholesaler, with VAT being $160, then the wholesaler, when selling that item to a retailer, is required to add his/her mark-up on the $1,000, and not to the VAT inclusive price of $1160. After the mark-up is added, then that retailer is required to charge VAT on the final selling price of the pair of shoes. It should be noted that the mark-up is not added to the VAT inclusive cost of $1160, since VAT paid by the importer at the time of importation, is refunded once the importer is a VAT registrant. All VAT registrants are aware of this fact.
VAT replaced six taxes, including the Consumption Tax. Unlike the Consumption Tax, VAT is not a tax on a tax. With the Consumption Tax, the importer or wholesaler adds a mark-up to the goods without deducting the tax. Further, the rates of Consumption Tax varied and in some cases, were higher than the current sixteen per cent rate of VAT. Therefore, a higher rate of tax was previously paid on imported goods. This cost was incurred by the consumer. As alluded to earlier, VAT allows businesses to set aside the VAT paid on imports before adding a mark-up to a product, since the tax is refunded to the importer. See comparison below.
Example:
Consumption Tax $ Value Added Tax $
CIF 1,000 CIF 1,000
VAT (16%) 160
Cost of Importation 1,300 Cost of Importation 1,160
Determination of Selling Price:
Mark Up 200 CIF 1,000
Mark Up 200
Total Marked-Up Price 1,200
Selling Price
1,500
VAT (16%) 192
Selling Price 1,392
The consumer, therefore, pays less tax than what he or she paid before the Consumption Tax was repealed.
Additionally, there are several categories of Sales Tax and VAT can be considered a Sales Tax.
Finally, I wish to remind all VAT registrants that they are obligated to responsibly collect Value Added Tax.
Further, consumers are urged to report any unscrupulous businessmen who fail to adhere to the Tax Laws of Guyana. Reports can be made discreetly on GRA’s Intelligence Hotline 225-6687.
Yours faithfully,
Wendella Willabus
Head Communications & Tax Advisory
Services Division
