Today we conclude the article on the draft regulations published under
the Value-Added Tax Act (VAT) to facilitate the introduction of the VAT, a
tax on all goods and services in the country. On September 6, the
implementation team drawn from the Guyana Revenue Authority (GRA) will be
holding consultations on these regulations which set out the detailed
procedures for the implementation of the tax. The draft is still, however,
incomplete and key matters such as the rate of the tax and the threshold for
registration are not included in the draft, perhaps because the consultants
have failed to deliver on time.
Despite the absence of such critical information the Commissioner General
of the Guyana Revenue Authority was quoted two Fridays ago in a statement
published by the Government Information Agency (GINA) as forecasting that
"prices are likely to go down with the implementation of VAT." This column
is very concerned that the government should be using the GRA to make
statements of a clearly political nature that do not accord with the
information made available to the public, and worse, that are misleading.
The GRA is there to execute and administer the tax laws not formulate tax
policy or make political and speculative pronouncements, which is the job of
the policy framers and the government. Unfortunately, about the only
statement of note made by the Minister of Finance on the VAT is that the
timeline for implementation is IMF-driven!
A review of the Schedule of Amendments to the Value-Added Tax Bill 2005
reveals that several of the issues and concerns raised by the Private Sector
Commission (PSC) and other stakeholders have not been addressed. Not
addressed either are twenty-one questions raised by the PSC in a June 2005
letter to the Minister of Finance following his failure to keep an
appointment with their representatives in his office. Such conduct amounts
to much more than mere discourtesy and one wonders why the PSC tolerates
such insults. The kindest interpretation I can put on the conduct of the
minister who did not even pilot the history-making legislation in the
National Assembly is that he is not sufficiently conversant with the
legislation to make independent public statements on it.
Even at this stage the Minister of Finance and the government owe it to
the nation to answer the questions submitted by the PSC to the Minister
among which are the principal objectives for the introduction of VAT; why
the tax reform consultation contemplated in 2000 was not undertaken; the VAT
position of those companies which currently enjoy various forms of
exemptions and with those sectors whose products do not now attract any
sales tax such as gold and diamonds; the effectiveness of the proposed
system in economic, equity, and administrative terms; how the proposed
system will address the particular circumstances of Guyana with a culture of
evasion, a large informal economy, widespread smuggling and a low level of
compliance; the number and location of VAT offices proposed to be set up;
how remote areas and border towns will be dealt with for purposes of the
VAT; the structure of the VAT administration and the number of staff to be
freed up by repeal of existing legislation; the number and level of staff
including auditors required in system; since VAT represents a fundamental
shift from taxing income to expenditure, whether income and corporation
taxes would be reduced and within what time frame; whether the PSC could be
provided with a copy of the formal implementation plan including a budget;
the justification for not zero-rating food and agricultural inputs and an
indication of the country on which our model is based. The PSC had also
asked to be represented on the VAT implementation team, but that too has
been ignored. How can a government that speaks so glibly of accountability,
democracy and consultation ignore its stakeholders in such cavalier fashion?
Before looking at the amendments which have in fact been accepted let me
state why the statement by the GRA is misleading. The GRA's statement
conveniently ignored the 'Sister Act' of VAT called the Excise Tax Act which
poses more dangers than even the VAT. The Explanatory Memorandum to that act
states that one of the purposes of the excise tax is to make the combined
effect of the two taxes revenue-neutral which means no more or no less tax.
Which prices are likely to go down, and which therefore will increase to
compensate? Of even greater significance is the rejection by government of
the calls for basic food items to be zero-rated which means that food items
will face the weight of the tax. Any objective observer would therefore be
looking at increased taxes not price decreases and the Minister of Finance
should therefore clarify the statement by the GRA.
The submissions made by the Special Select Committee included scores of
concerns not both on the contents and omissions of the two bills (before
they became acts) also on the drafting points in the legislation. There were
two major changes accepted at the committee stage - the July 2006 date for
implementation has been replaced with an open date to be set by the Minister
of Finance and 2) the composition and qualification of members of the VAT
Board of Review.
The amendment to the section on the Board of Review has raised what may
be considered an extremely serious issue and that is to give the chairman a
casting vote if the Board of Review is tied on a decision. That is absurd
and a tie should be decided in favour of the taxpayer.
The National Assembly made one amendment of its own and that was to
require the Commissioner General to obtain a court order before placing a
restriction on anyone seeking to leave the country who might be suspected of
The PSC which had expressed general support of VAT had requested the
delaying of the passage of the act until more preparatory work had been done
and questions resolved. It had also asked for the zero-rating of food and
agricultural items, had noted that it considered the rate so fundamental
that the law should be delayed until that was determined, that it be
included in the act rather than in subsidiary legislation and be set at no
more than 10 per cent. The PSC had also asked that the uncertainties and
ambiguities in the Excise Tax Bill including the types of items subject to
the tax be removed.
Apart from the policy issues which have not been addressed, the
government has clearly rejected a number of concerns and objections which is
not without implications and risks given the court challenge to the most
recent tax legislation. The PSC which had taken legal advice in the
preparation of its submission to the select committee had drawn attention to
certain other sections of the law which might not withstand judicial
scrutiny including the wide powers of the minister and the commissioner.
One area of major concern is that dealing with interest and refund. Any
late payment will attract interest at the rate of 2% per month from month
one while excess credit is treated as input tax for six months before a
claim can be made for refund in writing, and the refund would only attract
tax at 1% per month from the date the refund is due. This is not only unjust
but appears to conflict with section 6B (1) of the Financial Administration
and Audit Act which we discussed last week.
There has crept into our legal system a model of drafting not consistent
with the general body of laws and in which the office of the Attorney
General plays only an insignificant part. Pressured by the IMF to put this
and that law into operation without the necessary drafting skills we then
contract any available consultant to come and do the job. What the IMF is
not too interested in and what we seem to ignore is that our practitioners,
regulators and adjudicators, unfamiliar with the imposed models and styles
are unable to implement the new measures effectively. This is surely an
issue in which the legal profession should become involved.
The type of drafting of which the VAT regulations are an example began in
earnest with the Companies Act 1991 which has been the cause of a number of
problems. We clearly consider these less important than rushing to satisfy
IMF-imposed 'conditionalities' so that we can hold high our hands with the
ever ready begging bowl.
Despite the change from July 2006 to an open date the GINA report still
speaks of the VAT regime being in place 'within a year'. This fails to
acknowledge the significant challenges of implementation facing not only the
GRA but also businesses which have the primary responsibility for the
collection of the tax. Should we not be worried that the presidential
advisers, the AG's chambers and the GRA did not detect the cut-and-paste
errors in the act or the misleading statement in the introductory section of
the draft VAT regulations?
It would be interesting to see how the PSC pursues its recommendations
which have all but been ignored.