Govt backpedals on VAT reduction promise

Government appears to be dragging its heels on its long-delayed manifesto promise to significantly reduce the rate of the Value Added Tax (VAT) on consumer items – within 100 days of taking office.

Finance Minister Winston Jordan, during a press conference on Monday, posited that the Administration had practically done all that was possible in relation to alleviating the burden of VAT and any more changes would require extensive consultations and possible repercussions.

Jordan pointed out that Government has already implemented an extension to the zero-rated VAT items in both Budget 2015 and Budget 2016.

“There is virtually nothing more left to reduce on,” the Minister declared.

Further justifying the Government’s decision to not keep its campaign promise, Jordan also insisted that the Private Sector Commission (PSC) advised against VAT reduction during the budget consultations.

The Finance Minister conceded, however, that the A Partnership for National Unity/Alliance For Change (APNU/AFC) coalition did indeed promise a significant reduction in the VAT rate, but indicated that there was a slim likelihood of this occurring without any consequences.

“This is a commitment that we intend to uphold, but it’s a commitment that we want to be sure when we do it, we won’t have to hastily pull it back … We cannot reduce VAT on existing base, we have to broaden the base to recoup revenues that will be lost…We want to do it in a careful manner so that when we do it, we won’t have to go back and increase it or something,” he explained, though this was never disclosed on the campaign trail.

Jordan highlighted that there were various options for reducing VAT, one being a charge on consumer items like electricity and water as a trade-off for an across-the-board reduction.

“What we would want to do is have the widest possible consultations ,because some of the options that you have is putting the VAT on some things that could cause trouble and then you will hear, you know, I said it the last time that you have to bring into the mix, things like water that doesn’t attract VAT at the moment, electricity that doesn’t attract VAT at the moment…If you remember in Trinidad and Tobago, when they reduced the rate, they broadened the base …They removed all the exemptions, so even baby food attracted VAT…We have to be prepared for what is doable and what may not be doable,” he stated.

Nonetheless, he assured that Cabinet was discussing the matter and any changes to the VAT system were likely to come on stream in 2017.

Providing assistance to Guyana in this regard is the International Monetary Fund (IMF). According to the Finance Minister, a mission will be dispatched to Guyana to conduct an assessment of the VAT structure in the country and make recommendations on how to proceed to implement changes.

The Tax Reform Committee was established by Government to conduct a similar assessment, but, according to Jordan, the members probably did not perform an adequate task.

Nonetheless, he lauded the work done by the Committee and noted that the other recommendations made were before Cabinet for discussions.

Finance Minister Winston Jordan
Finance Minister Winston Jordan