Sunday, August 28th, 2005

Introduction:

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!

Ignore them:

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?

Sister act:

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 amendments:

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 owing VAT.

PSC support:

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.

Inconsistency:

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.