Private Sector placed in uncompetitive position due to higher taxes – financial analyst

By Samuel Sukhnandan

Higher taxation will cause systemic damage to the country’s economic framework and has the potential to drive businesses away to invest elsewhere, financial analyst Sasenarine Singh has cautioned.
Singh told Guyana Times on Sunday that increased taxes in Guyana have already led to an upsurge in the cost of production, which is driving the Private Sector into a more uncompetitive position.
“So, you will find this increase in taxation has resulted in a productivity decline for the Private Sector over the last 12 months. The Private Sector needs to be the engine of growth to drive the new frontier of economic expansion that can fuel the new jobs, but these new taxes in the 2017 National Budget are working against this entire protocol of creating new jobs and new economic activity,” Singh asserted.
Putting things into perspective, the financial analyst explained that when one looks at the Private Sector, there have not been any tangible investments at least in the past two years.
This is something that Business Minister Dominic Gaskin has acknowledged. The Minister said in early April that investors were interested in political and economic stability, rule of law, the integrity of public officials, physical security and the ease of doing business.
Gaskin had further acknowledged that Guyana was not a high-ranked country in any of these areas and cited the need to improve the business environment so that the country could gain an advantage over its competitors.
Meanwhile, Singh, a US-based Guyanese financial expert, argued that investors go to places where they can have a better return on their investment, access to a motivated workforce and the cost of production is relatively lower. He said countries with lower taxation were likely to attract more investment than those with higher taxation.
“Even though this may be a bonus for the Granger Administration in the short term, in the long term, it’s a bad thing for the country to have such level of taxation,” he opined.

Capital flight
Singh cautioned that while some businesses have been engaged in moving their financial assets and capital to other countries, commonly referred to as capital flight, this could actually expand into something much larger.
“More and more business people will go in that direction and invest in places like Grenada and Saint Lucia which have more favourable investment climates than Guyana right now. A lot of Guyanese businesses are going to start diversifying in Caribbean islands so that they can continue to make profits,” he added. “Business people have no time to waste with backward policies; they move their capital where they can make a reasonable return.”
Singh told this publication that while Government revenue was increasing, there was a segment of society that was funding this increase in revenue.
“Is it the working class? If it’s the workers of Guyana, then it’s a regressive tax because all it is doing is taxing the poor to fund a Government operation that is not necessarily efficient and effective,” he stated.
He acknowledged that there was a need to conduct more studies to determine the impact these new taxes such as the tax on electricity, water, and private education, was having on working class people.
“I know for sure the tax on electricity has adversely impacted the masses, which means that they have less money available to buy basic food items because they have to find new monies to pay for electricity.”

Drawing board
In order for Government to prevent further damage, Singh is advising that it goes back to the drawing board and seriously considers implementing some of the recommendations that were made by the Tax Reform Committee back in February 2016, that it helped to set up.
The Committee had recommended that Government lower the Value Added Tax (VAT) to an intermediate rate of seven per cent, raise the income tax threshold to $750,000 with progressive rates of taxation from 20 per cent to 35 per cent, and reintroduce estate duties and levies on tobacco and alcohol.
“They are not consulting that document enough. They were all favourable ideas for a long-term strategy to make Guyana more tax balanced,” he asserted.
At present, Singh believes that the poor are being taxed too much and the business community is being pushed out of its competitive zone as a result of the high level of taxation.
Singh said he was also certain that Government has made up its mind to continue this higher level of taxes because it was the lazy thing to do.
“The mindset in the Government: comes hell or high water, they are not going to budge on any of these measures in the 2017 budget. But any sensible policymaker will realise that even though the short-term impact on revenue is good, the systemic damage to the economy is devastating,” he stated.
He cited the need for Government to become more efficient because he strongly believes that it was extremely inefficient with regard to the way it was spending taxpayers’ money.
“Because they are so inefficient and they have to tax more to spend more, they are basically crowding out the Private Sector from spending and investing,” he added.
The financial analyst also pointed to the state of the loan portfolio at the commercial banks, which is deteriorating because a greater portion of the loans is going bad.
“And this is because people can’t pay their debt on time. Businesses and people are less capable now, compared to two years ago, at servicing their loans at the bank and this will have an adverse systemic effect across the financial system,” he added.
According to the Monthly Economic Bulletin for March 2017 produced by the Finance Ministry, Government’s year to date current revenues amounted to $21.4 billion for the period up to February 2017 compared to $17.4 billion collected during the same period in 2016. VAT collection for the period to February 2017 amounted to $6.1 billion, a 5.5 per cent growth compared to 2016. This is mainly attributed to the VAT on electricity and water, and expansion in VAT was due to growth in the value of imports. The excise tax grew by 67 per cent in the period up to February 2017 and this is mainly the result of the higher recovery of taxes at the fuel pump.
Singh pondered, “Should this not beg the question, to ease the pressure on the cost of living, should we not reconsider the size of the excise tax on petroleum products which will positively help the farmers, the minibus operators and the economy in general?”