Reform in taxation process crucial – financial analyst

Hike in fuel prices

– says subvention will create ‘administrative nightmare’

Given recent concerns about the increasing prices for fuel, US-based Guyanese Financial Analyst Sasenarine Singh is recommending that the coalition Government give thoughtful consideration to reforming the taxation strategy with respect to petroleum products.
Singh said Government should focus on cushioning the adverse effects being felt locally because of the high fuel price at the pumps, but at the same time, the 2018 budget revenue projections from excise taxes on petroleum products should be preserved.
During December 2017, crude prices averaged about US$57 per barrel. This commodity is currently being traded on the open market at an average price of US$71 per barrel.
The fact remains that the Government has no control over the acquisition cost for fuel. However, Government can do something seismic with its taxation policy without affecting the 2018 Budget Revenue projections.
“The Government must intervene using taxation policy to rationalise the price at the pump. The difference between the acquisition cost and the price at the pump is the excise taxes applied by the Government. When a shipment of fuel lands in Guyana, the Government applies an excise tax on it. If the acquisition cost is higher, then the Government’s revenues in real dollars will be higher. It is simple arithmetic, it is a percentage, if the base is higher, the absolute dollars in revenue

Financial Analyst Sasenarine Singh

will be higher,” Singh explained.
The financial analyst told Guyana Times on Sunday that the budget reported a projected oil price of US$56 per barrel for 2018. This is expected to generate and expand the collection of total dollars from excise taxes for petroleum products over 2018 by G$2.2 billion from the prior year, taking it to G$25.3 billion. However, because the price moved from US$56 to US$71 since the beginning of the year, the Government is now projected to collect on top of that G$2.2 billion an additional G$1.8 billion.
“All I am advocating…is that we pass on… this unbudgeted G$1.8 billion increase to the consumers. I have no problem with the Government holding to its original budgetary projections and proceeding to collect the additional $2.2 billion. What I do have a problem with is, instead of collecting an expansion of $2.2 billion, the Government is now set to collect an additional $4 billion in excise taxes on petroleum products over 2018. I’m arguing that the $1.8 billion, which is the difference between the $4 billion and the $2.2 billion, should be passed on to the consumers,” he asserted.
Singh said there is a way in which Government can do this, and the best recommendation would be to reduce the excise tax on petroleum products by one third (between 30 and 35 percent) immediately. According to him, since this issue is happening in the middle of the calendar year, Government would be able to still come out a winner with this strategy, because it would have already banked the gains from January 2018 to May 2018.
Singh recalled that this move was made by the previous Peoples Progressive Party (PPP) Administration. In 2009, then Finance Minister Dr. Ashni Singh had reduced the tax on gasoline from 50 percent to 30 percent, and also went and reduced the tax on diesel from 40 to 30 percent.
Again, in 2015, the PPP Administration had reduced fuel prices from $995 per gallon to $695, representing a 30 percent reduction. Diesel price was also reduced by 30 percent, from $985 to $694; and kerosene saw a reduction of 42 percent, from $850 to $496, similar to what had taken place in 2009.
Nightmare
Recently, Public Infrastructure Minister David Patterson affirmed that his Ministry and other Government agencies have been engaging the minibus operators on the issue. Minister Patterson had also noted that subventions are being considered as a means of cushioning the effects of the increase.
But Singh questioned the rationale behind the idea, claiming that if Government takes that step, it would turn out to be an “administrative nightmare”.
“Basically, what it means is that they will collect the money and you will have to go and apply for a refund, and that is going to feed another bureaucracy with more red tape. Why would you want to do something like that? You may have to hire new people, and this will increase the cost of administering that. It is silly!” Singh said.
“Reduce the rate and let it pass on to everyone! It will filter through the economy, and all will benefit. As the tide rises, all boats will rise if this tax strategy is advanced. It will also remove the justification from the minibus operators to increase their prices. Also, all other sectors will feel the direct benefit – the miners, the rice farmers, the manufacturing sector and everybody else will feel the benefit of the lower excise tax. It will percolate across the economy and it will, in the end, drive economic growth,” Singh argued.
Gas station prices for fuel have increased rapidly from $215 per litre to prices ranging from $230 to $250 per litre. Since the hike, there have been widespread protests and fears of public transportation strikes. There have been cases of minibus operators burning tyres along the East Coast railway embankment.
The Federation of Independent Trade Unions of Guyana (FITUG) and the Private Sector Commission (PSC) has been among those calling for Government to act swiftly to protect consumers. (Samuel Sukhnandan)