In its proposals for this year’s budget, the Private Sector Commission (PSC) has recommended to the government that the rate of personal income tax be cut from 33.3% to 28% and that the property tax for individuals be abolished completely.
It does not recommend a change in the VAT rate of 16%. In its submission dated January 15, 2013 for consideration for Monday’s budget, the PSC said that aside from the property tax for individuals, its tax proposals envisage implementation of the recommendations over three to five years.
The property tax on individuals, the PSC said, constitutes double or even triple taxation as persons are already paying withholding taxes on bank deposits and municipal taxes on property.
The PSC is also of the view that the income tax threshold “has reached an acceptable level” and should remain so in the short term. It proposed however a reduction of the rate of personal income tax from 33.3% to 28%.
“Following the introduction of VAT, middle income persons face a double burden with the continued high rate of personal income taxes. Additionally, employees paying as they earn, bear a greater burden than the majority of the self-employed and the others who are not captured in the tax net. A more progressive income tax will provide relief to those in the middle-income bracket. The PSC considers VAT the more equitable and preferred taxation system going forward”, the PSC said.
It also called for the lowering of the corporation tax by another 5%. The tax was cut by 5% last year and the PSC said it has had a beneficial effect on government revenue. The PSC recommended that another 5% reduction be achieved at 1% per annum for the next five years.
A series of other proposals were made including the dredging of the Georgetown Harbour, a road link between Timehri and the East Coast , a Linden/Lethem road or rail and a new bridge for the Demerara River.
The proposals follow:
Private Sector Commission Recommendations to the Government of Guyana
PSC Proposals for Budget 2013
The global economic situation remains very fragile although some positive trends are now emerging. Against this background and for long-term economic security, and protection from external market forces and price movement, Guyana must reduce it’s over dependence on commodity exports and work towards creating a broad based economy with high value added content. We believe the National Budget going forward should have as its primary focus, the achievement of this objective.
- 1. Infrastructure
- a. Georgetown Harbour
The Georgetown Harbour and channel requires professional contract dredging as a matter of absolute urgency. A deepened channel and harbour will assist in reducing the cost of doing business / increase competitiveness and lower the cost of living. The current state of the Harbour prevents the entry of larger ships and restricts the volume of cargo that that can be moved per sailing even on smaller vessels thus resulting in increased freight cost per tonne of cargo and making low margin exports non competitive. Eighty percent of Guyana’s imports and exports move through the Demerara Harbour including calcined bauxite. Once the initial dredging is completed ongoing maintenance could be undertaken under a Public-Private Partnership. The longer term aim of establishing a deep water harbour, possibly offshore using a casino type access system, should continue to be developed and the various options evaluated.
- b. Timehri/Georgetown/East Coast Demerara Direct Road Link
It is proposed that a new highway be constructed between the expanded airport and the East Coast Demerara – Georgetown corridor. This will significantly reduce the congestion on the East Bank Road and will provide an alternative means of ingress to the city and promote the development of housing estates on higher land areas Though the widening of parts of the existing East Bank road is in progress the road will be inadequate to handle the increased volume of traffic and further expansion costs using the existing route would be prohibitive.
- c. East Bank Essequibo Parika/ Bartica Road
This will aid development particularly in the higher land areas adjacent to Bartica, provide improved access to mining areas in the upper Essequibo as well as agricultural zones in the lower Essequibo and will impact positively on the development of tourism
- d. Linden/Lethem Road or Rail
We cannot overemphasize the importance of developing this strategic link as swiftly as possible. Apart from the opportunity of increasing Guyana’s exports to Brazil under the Partial Scope Agreement there is the opportunity for Guyana to serve as a conduit to the Atlantic for Brazilian goods, thus creating domestic employment from a range of services. The finalization of this project has now become very urgent as Suriname is moving rapidly to develop the infrastructure necessary to also provide an Atlantic port for northern Brazil. A real possibility exists that further delays could make Guyana redundant to Brazilian export interests
- e. Interior Roads and Air Strips
Interior airstrips in key areas require upgrading and expansion to permit the use of larger and more cost efficient aircraft that will provide the spin off benefits of greater passenger traffic, expanded tourist travel, domestic and foreign, and the incentive for settlement in interior regions. The use of larger aircraft will also permit the export of higher value products to the coastal strip.
There has been a decline in the maintenance of interior roads and some are deplorable state – a deterrent to investment in those regions. We would urge the government to make a concerted effort to upgrade these roads using contractors with the requisite equipment and skills and to establish partnerships with primary users for ongoing maintenance over 3 year cycles to support the contractors’ investment in equipment.
- f. Demerara Harbour Crossing
The current bridge has long outlived its expected 20 year life span and replacement is a priority. With the increase in the number of housing estates which have been developed on the western side of the river and with most employment and commerce still concentrated in the city and its environs, the current bridge is incapable of handling the flow. With the development of the East Bank Essequibo road and attended population movement the traffic loading on the bridge will increase further. In addition, the age of the current bridge leads to frequent downtime and costly repairs with the potential for a fatal occurrence. Funding for bridge design and associated logistical and environmental issues should be budgeted for in 2013
- 2. Environmental Enhancement
Allocate funds for the development and implementation of an effective national garbage handling and processing system. Provision should also be made for land and cover for centrally located paper and plastics recycling centers and drop off points across the country. These centers will require government support out of environmental taxes to fund collection and to support working capital and capital costs, the latter possibly on a one to one basis with private sector interests. The Commission is of the view that the Haags Bosch facility is inadequate and that arrangements should be made to either expand the facility or operate it on a twenty-four hour basis seven days per week.
The Private Sector Commission also urges the government to consider the option of generating electrical energy from waste using the Swedish incineration model. While this option may not have been feasible some years ago since the level of waste was not enough to justify the high capital cost and fossil fuel prices were low, the current level of waste is adequate to support a waste-to-energy incinerator. It should be noted that, in the Swedish model, in depth attention is paid to flue gas recovery to avoid air pollution. Landfills can be used for the resultant ashes from incineration or mixed with asphalt for roads.
- 3. Export Marketing and Sales
- a. SWAPS – Single Window Automated Processing System
This project is of primary importance to business and while the Private Sector Commission is aware that the implementation of the SWAPS is in progress, the Commission would like to ensure that sufficient funds are allocated for completion of the project.
- b. Export Marketing Support
The Commission is of the view that more has to be done to increase exports especially of non-traditional products and services. This would involve the allocation of funds for training of exporters and potential exporters as well as for promotional exercises such as participation in exhibitions and fairs.
The Private Sector Commission also strongly advocates intensified “professionally acceptable” marketing of Guyana overseas and would like to see substantial funds earmarked for this in the Budget. This includes but is not limited to marketing the country as a Nature Tourism haven. It is essential that the country’s image be enhanced, which would have a positive economic impact on development.
- Energy
Energy has the greatest impact on manufacturing costs followed by the cost of freight on imports and exports. The Commission recommends that the government provide import tax relief, including relief from VAT, on imports of all alternative energy components – solar, wind and micro hydro. The Commission also proposes that income tax relief be provided on the capital cost of alternative energy equipment to individuals wishing to convert their homes fully to alternative energy electrical systems such as solar.
- a. Expansion of GPL Capacity
The Private Sector Commission recommends that the HFO capacity of the Guyana Power and Light Co. be expanded and that special rates be introduced to encourage manufacturers who currently self generate to return to the GPL grid. The capacity will in any event be required to support or provide backup to hydropower. A key issue to attracting industrial customers will be the quality of power and, in particular, voltage stability.
- 5. Taxation
The PSC proposals under taxation are driven by two key factors (1) the need to attract and retain skilled personnel on payroll and (2) to attract investment – local and foreign into the country. Other than property tax for individuals, these proposals envisage progressive implementation of these recommendations over a time line of 3 to 5 years.
- a. Property Tax
The Private Sector Commission recommends that property tax is removed completely for individuals. Removal of this tax is recommended for a number of reasons but the key issue is that it represents triple or double taxation as persons paying property taxes are already paying withholding taxes on bank deposits and municipal taxes on property.
- b. Corporation Tax
While the Commission is gratified that corporate taxes were reduced by 5%, it is felt that a reduction by a further 5% would lead to increased local and foreign investment and ultimately increased government revenue. The initial 5% reduction, as the Commission had predicted in its proposal for lower rates, resulted in an increase in government revenue from corporation taxes. We propose that this reduction is effected over a five-year period with the rate being lowered by one percentage point per annum.
- c. Personal Income Tax
The Private Sector Commission is of the opinion that the tax threshold has reached an acceptable level and should remain at its current level in the short term. The Commission however proposes a reduction in the rate of personal income taxes from 33.3% above the hurdle to 28%. Following the introduction of VAT, middle income persons face a double burden with the continued high rate of personal income taxes. Additionally, employees paying as they earn, bear a greater burden than the majority of the self-employed and the others who are not captured in the tax net. A more progressive income tax will provide relief to those in the middle-income bracket. The PSC considers VAT the more equitable and preferred taxation system going forward.
In closing, the Private Sector Commission looks forward to maintaining the ongoing positive and constructive dialogue with the Government of Guyana and with other stakeholders, with the ultimate objective of ensuring job and wealth creation and significant development of the Guyana economy.
We are heartened by the steady economic growth in the economy and look forward to contributing to further growth in 2013.
Private Sector Commission of Guyana
January 15, 2013
