rejecting a call by the Private Sector Commission of Guyana (PSC) for a
suspension of the passage of Bill # 3 of 2005, the Value Added Tax Bill, to
allow for consultations by the Government with stakeholders generally and
the PSC in particular, the National Assembly arrived at a compromise which
was unanimously approved at its second reading. The National Assembly agreed
to take the Bill to Select Committee during whose deliberation the PSC and
other bodies would be permitted to make its case for such changes to the
Bill as they consider appropriate. The deliberations of the National
Assembly are usually discussed with cynicism but on this most fundamental
piece of tax legislation, the members rose to the occasion with a debate
that was quite informative and, taken as a whole, reasonably balanced. There
were a few incorrect statements due perhaps to a lack of understanding;
omission of others such as any reference to the fact that there is no such
thing as a uniform VAT system or to the fact that the largest economy in the
world (USA) does not have a VAT and the second largest (Japan) has a VAT
that is considered quite unique; the impact of the introduction of VAT on
the cost of living and the lack of emphasis on the complexities of the tax
and the substantial opportunities for fraud such as a trader charging VAT on
fake invoices which are not recorded or accounted for to the authorities or
making improper claims for refunds.
issues I believe were not adequately addressed are the ability of the Guyana
Revenue Authority to administer the VAT given its existing responsibilities
and the human resource constraints facing every entity in Guyana and the
failure of the Bill to zero rate basic food items as is done in all the
CARICOM countries which have VAT.
Business Page once again looks at the subject having re-published late last
year a three part article first published in 1993. The basis of today's
article which continues next week is a presentation made by the writer at a
Luncheon Presentation sponsored by the Guyana Manufacturing and Services
Association Limited (GMA) on last Tuesday April 12.
Added Tax and tax reform:
expressed pessimism about any compromise from the majority party since there
is a long outstanding commitment given by the Government of Guyana to the
IMF for the introduction of VAT by July 2006. In the document dated July 7,
2004 in which the commitment is given, the introduction of VAT is stated 'to
advance tax reform consistent with VAT implementation by 2006'. In truth,
VAT has been on and off the agenda for over twelve years although the
current administration appears to have argued against it in 1993 in response
to a call by Professor Clive Thomas for the Government to give it
consideration. To that extent, I consider that the private sector must
accept part responsibility for the obvious lack of information, preparation
and discussion on what is considered the most innovative tax system to have
been introduced anywhere in the world over the past century. VAT now
operates in about 140 countries with the majority having introduced the tax
over the past quarter of a century.
trouble with tax changes even when they are no more than tinkering is to
shroud them in the cloak of tax reform. Really meaningful and serious tax
reform requires the simultaneous review of all existing taxes, with all the
stakeholders. In particular, the introduction of VAT - an expenditure tax -
should be accompanied by a reduction of taxes on income. Whether such issues
can be raised in the Committee stage of the Bill is an open question but if
the atmosphere of compromise persists, there is no reason why the parties
cannot agree to include this as it deals with the tax modeling that is
necessary to determine the rate of the VAT which is still to be decided.
move into the substantive issue and particularly since the tax we are told
is being introduced to advance tax reform, let me mention a few areas where
the cries for reform have been all but ignored.
Differential tax rates - commercial v non- commercial company
un-incorporated vs. incorporated business
Evasion (estimate by the Commissioner General of billions lost through
tax threshold far too low and should be radically increased
Corporation tax should be more in line with personal taxes
imposition of a withholding tax on those multi-million dollar contracts
whose contribution to the State seems negligible.
statutory review of the decision in the Bata Shoe Company Case
penal duties on incorporation of companies.
Apparently unreasonable and unjustifiable remissions and exemptions.
It is a
fair chance that the country loses as much again via tax holidays, which are
closely guarded secrets, and exemptions for some type of businesses. In
other words, we probably remit or forgive as much as three times the annual
taxes paid by companies.
from considerations of equity such generosity with funds otherwise due to
the state seems to make no economic sense particularly in the context of the
weak performance of the economy over the same period as the real GDP growth
shows.The question which arises is are these free lunches since they do not
contribute to economic growth as the following figures show?
Amount Real GDP Growth:
must also be some concern that personal taxes now contribute as much to the
coffers of the state as companies do. When we consider the meagre - some
would say mean - allowance for individuals, the lack of equity in the
personal tax system is further exposed.
IMF, as drivers of our economic and fiscal policies, was serious about tax
reform including such basic concepts as efficiency, equity, transparency and
certainty, then it should be rooting for those concerns to be addressed
rather than for the introduction of another tax for which the country is by
all accounts hardly prepared. The IMF cannot be unaware that the last major
piece of 'tax reform' it proposed and embodied in the Fiscal Enactment
Amendment Act #15 of 2003 is still to be properly implemented. I should
mention as well that the flip side of the tax reform debate is expenditure
management - a topic that demands equally serious attention.
world going Vat - but not the USA:
operates in 136 out of 186 countries although only nine out of the 27
countries with a population of less than one million have the tax. One of
the first countries outside of Europe to have introduced it was our giant
neighbour Brazil back in the sixties while Caricom neighbours Trinidad,
Barbados and Jamaica have been more recent converts. VAT exists in every
country in Europe and in Canada but significantly not in the USA.
Interestingly, only five countries have ever removed an existing VAT and of
these, three have reintroduced the tax. Two Caricom countries, Grenada
(introduced 1986, dismantled shortly thereafter) and Belize (introduced
1996, removed 1999) have held out. The numbers do not necessarily reflect
the efficacy of VAT since the tax is also largely driven by the IMF which
believes in its inherent virtues, the principal of which is that it assists
in the better allocation of resources. That argument may indeed hold true
for the private sector but is it equally applicable to governments? In other
words, do governments take such factors into account when deciding on their