Govt promises further VAT reduction next year

In what was explained to be a phased reduction of the Value Added Tax (VAT) regime, the coalition Government says it will be moving to further reduce the current 14 per cent taxation come next year.

“The general approach of the Government is to progressively reduce value added tax. This year, as you know, we had some challenges and rising of the revenues had to be done, (but) I’m very confident in the next budget, we will a reduction in that tax,” President Granger told reporters during ‘The Public Interest’ programme.

Following the presentation of the 2017 Budget in November last year, Government had come under widespread criticisms from various sections of society over the new tax measures. Much to the satisfaction and anticipation of Guyanese, Government announced a two per cent reduction in VAT, but before this could have been digested, it made the swift announcement of the extension of VAT payments on water and electricity bills that exceed $1,500 and $10,000 per month, respectively. Another area that VAT charges were implemented on was the education sector, with private educational institutions now being made to pay the 14 per cent tax.

According to President Granger, while Government is keen to further lower the VAT rate from the recently reduced 14 per cent, he cannot say what the new revised figures would be. Moreover, he explained that Government will also be reducing the number of items that attract VAT charges. Again, he did not go into detail about whether the taxation on these services would be reduced.

“We will reduce the amount of items and reduce the rates at which those items are taxed, but I don’t want to make a prediction now because the government’s spending is based on its earnings,” the President stated.

This move to reduce the 16 per cent VAT was done by the Coalition to fulfil one of its 2015 Campaign and Manifesto promises.

But stakeholders have since expressed that while the current administration gave the hopes of relief with the two per cent VAT reduction in Budget 2017, it quickly snatched it away with the new tax charges on these consumer services.

During his budget presentation in December, Finance Minister Winston Jordan had stated that the revised VAT rate was based on recommendations of the Tax Reform Committee, which was set up by the Head of State, and the Caribbean Regional Technical Assistance Centre (CARTAC) study.

However, in its analysis of the Government’s Financial Plan, eminent accounting firm Ram and McRae found that the reduction of VAT from 16 per cent to 14 per cent differs from those of CARTAC and the TRC in very significant ways. CARTAC recommended two rates – 16 per cent and 8 per cent. The TRC recommended 14 per cent and 7 per cent.

Meanwhile, as it relates to the application of VAT on electricity and water, the accounting firm found that at the proposed rate of VAT, “this is likely to cause a substantial increase in the VAT borne by affected taxpayers.”

On the matter of the elimination of all zero-rated items, except those pertaining to exports and manufacturing inputs, Ram and McRae found that the consequences of these proposals are severe: “We have taken an actual spending of a taxpayer and calculated the VAT under the current and proposed regimes… VAT increases by 155 per cent and total expenditure by 7.3 per cent.” According to the analysis supplied by Ram and McRae; “All taxpayers will have different spending patterns, but we believe that they will face increases in their spending… It is not without significance that while the economy is projected to grow by 3.5 per cent, VAT collections are expected to raise by an average of 25 per cent on imports, as well as domestic supplies.”