Our Competitive Advantage
Last week we started to look at some of Guyana's principal competitors in
Caricom and looked principally at the corporate income tax regime in these
countries. We noted then that investors factor into their decision-making
equation the system of indirect as well as personal taxes. Indirect taxes
apply of course to both corporate as well as individual taxpayers. In our
limited survey we included in addition to Guyana, Barbados, Jamaica,
St.Lucia and Trinidad & Tobago. Today we will look at the indirect and
personal tax systems in these countries.
Corporate Tax Structure
Indirect Taxes
With the exception of St. Lucia, all the countries we selected introduced
Value Added Tax (VAT) several years ago. The introduction of VAT was
preceded by comprehensive tax reform, something we talk a lot about in
Guyana. In the early days of the Economic Recovery Programme, some bold
steps were taken towards reform but some of these measures have been
reversed and despite discussions and seminars on VAT apparently no decision
has been taken. Guyana and St .Lucia therefore maintain the traditional
forms of indirect taxes with an array of rates.
Barbados introduced VAT in 1997 replacing consumption tax, customs
duties, hotel and restaurant sales tax, service tax, tax on certain
minerals, airline service business tax, travel ticket tax and
telecommunications tax but not Excise Tax which was rationalised as part of
the VAT tax reform.
Trinidad introduced VAT several years earlier but unlike Barbados the
introduction of the VAT did not eliminate customs and excise duties which
are still imposed under the Customs Act by the Comptroller of the Customs.
Excise taxes are imposed on certain locally produced goods, primarily
liquor, beer and cigarettes.
VAT is charged on a wide range of goods and services within Trinidad and
Tobago, as well as on the importation of most goods into the country with
the exception of items, including capital items, imported for a temporary
period only. Essential services and basic foodstuffs are zero rated whilst
certain services are exempt from VAT. The standard rate of tax is 15%.
Jamaica in 1991 implemented General Consumption Tax (GCT), a form of
Value Added Tax which is chargeable on certain goods and services and
imports. Like both Barbados and Trinidad, the rate of tax charged is 15%.
GCT is accompanied by the Special Consumption Tax (SCT), which is an excise
tax and which is levied on the manufacture for sale in Jamaica and the
import into Jamaica of prescribed goods i.e. petroleum products. GCT and SCT
replaced the consumption tax duty, retail sales tax, telephone services tax,
hotels tax and the relevant parts of the excise duty. Exemptions have been
extended to GCT.
In the absence of structural reform of our indirect tax system a number
of weaknesses have been identified and described in the National Development
Strategy with respect to customs duties and consumption taxes. Some of these
include high rates which encourage evasion and discourage investment and
production. These high rates also encourage exemptions and calls for tax
holidays which result in a structure full of distortions and capable of
modifications at the discretion of the Minister. The inconsistent tax rate
creates economic inefficiency, lack transparency and is subject to abuses of
exemptions and tax holidays.
The manufacturing sector has been particularly critical of the rate at
which Consumption Tax is levied on a wide range of products. In common with
other Caricom countries inputs for registered manufacturers are exempt, as
are exports but the 30% rate faced by many sectors is higher than the VAT
rate payable in other countries and either encourage evasion or carry the
prices often beyond the reach of many consumers.
Personal taxes (All currency referred to
is in G$ for sake of comparison)
With limited skills available in host countries, investors know they have
to pay a premium to attract persons from their home countries to work and
live abroad. The personal tax system is therefore of great interest to them
while other payroll obligations such as NIS are seldom more than cost. The
personal tax system is an area which has witnessed the greatest reform over
the past two decades as many countries moved to reduce rates, remove
allowances and simplify their tax system. Guyana took a very bold step when
in 1991 it replaced a range of personal allowances with a single allowance
of the greater of a fixed allowance or 1/3 of chargeable income.
Unfortunately the 1/3 was removed in 1993 and despite some increases in the
personal allowance, Guyana now has the lowest allowance expressed in US $
than any of the other countries.
Our survey shows how uncompetitive Guyana's personal tax system is when
compared with the other countries. A person who earns the equivalent of
G$50,000 per month will pay no taxes in Barbados, St. Lucia or Trinidad but
will pay tax of G$4,547 per month in Jamaica and G$9,177 per month in
Guyana. A person earning the equivalent of G$150,000 per month will pay
$9,296 in Barbados, $11,358 in St.Lucia, $24,961 in Trinidad and G$29,549
per month in Jamaica.
Only in Guyana is a person over sixty who earns over $50,000 per month
required to pay taxes ($9,177). A Caribbean person earning the equivalent of
G$150,000 per month will pay no tax in Barbados, $11,358 in St. Lucia,
$22,681 in Trinidad and $42,511 in Guyana.
Despite the commendable successes of our entrepreneurs in the recent
E&Y Entrepreneur of the Year Programme, there is still a substantial
deficiency between the tax system of Guyana and those of other Caricom
countries. The case for tax reform has been made so often, by so many people
and over so many years that it is tempting to conclude that such reform is
not considered a priority in our economic programme.
Other Issues
More than tax considerations go into the investment decision. Indeed,
some of the poorest countries in the world have some of the most generous
tax incentives and yet fail to attract investors. While we in Guyana make
much of our natural resources and the vastness of our country, these can in
fact operate to our disadvantage since accessibility and transportation and
communication cost make the exploitation of these near uneconomic. Of the
survey countries with the exception of St. Lucia, Guyana has the smallest
population and also the smallest economy and therefore an uneconomic
internal market. At this stage our economy is being battered from all sides
and there is increasing unemployment, outward migration and declining
performance.
Our financial infrastructure comprises mainly a number of commercial
banks competing for the same deposits and loans and of the five countries
Guyana is the only one without a stock exchange. Infrastructure costs are
substantial and both the telephone and electricity utilities seem stretched
to the limit while operating under monopoly conditions.
Our legal system is overloaded and archaic and is used to frustrate
rather than to facilitate businesses. Calls for a commercial court have been
increasing but there is no indication that this will be introduced shortly.
The accounting profession in Guyana is the smallest of all the surveyed
countries. Even St. Lucia which has about one fifth of our population has
almost a third times more the number of accountants. Our education system
lags behind those of our competitors.
While we do have a number of outstanding entrepreneurs, the country has a
long way to go before it could reach the levels of so many of its Caricom
counterparts and achieve growth, development and prosperity to enhance the
living standards of every Guyanese which must be the ultimate goal of any
country.
What we need to do now perhaps is not only to compare ourselves with
others, but with where we came from and where we ought to be. We need to
become the best that we can be in the shortest possible time.
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