FROM its inception in 2007, VAT seemed to have been one of the most unpopular topics. I recognise that many persons, particularly low-income individuals, have expressed their frustration at VAT being so high, that is, at 16%. However, as high as it may seem, through the Government of Guyana’s intervention in 2008 during the rising global food and fuel prices, many basic food items and medical and educational services have been zero-rated for VAT.
Additionally, there are items that are exempted from VAT, including kerosene, liquid propane gas (cooking gas), gasoline and diesel. VAT has replaced six taxes, namely the consumption tax, purchase tax, hotel accommodation tax, telephone tax, service tax, and entertainment tax. In my feature titled “The global economy affects Guyana’s cost of living”, published by the Guyana Chronicle on September 29, 2011, I wrote about VAT in relation to the cost of living in Guyana.
Today, on average, VAT in the Caribbean is 15% (Caribbean Regional Technical Assistance Centre (CARTAC), 2010). A country normally introduces a policy where the costs overweigh the benefits. The benefits resulting from VAT are accrued to the country as a whole, and not to a small group of self-interested persons. VAT helps to capture the wider net of persons, including those in the underground economy who are supposed to pay taxes but are not paying taxes, and free riders who benefit from public goods and do not pay taxes.
CARTAC stated that VAT allows a country to have “a more stable source of revenue, prepare for loss of revenue as a result of the implementation of trade commitments, and consolidate the indirect taxes”. In the case of Guyana, the Guyana Government has been able to increase its revenue, thereby facilitating increases in expenditure in the various sectors, namely education and health. This is evident in the National Budgets over the years. The AFC proposes to reduce VAT to 12%. However, as attractive as it may seem, that move can reduce government revenue tremendously and hence lessen government’s ability to fully provide public goods and services, education and health, and effect infrastructural developments to benefit its people.
The Guyana Government understands that economic development involves more than just economic growth, and therefore it acknowledges the importance of social developments such as health, education, and infrastructure, among others. It also recognises the importance of providing basic goods and services to the Guyanese people; and by introducing VAT; it has been able to increase its investment in these sectors since 2008.