REDUCING the Value Added Tax (VAT) is not as “straightforward” as it may seem says Minister of Finance Winston Jordan. He said should government move to reduce VAT a number of other measures have to be put in place to cushion revenue loss. With recommendations from the Tax Review Committee (TRC) in hand, Jordan said the team noted that should VAT be reduced it would become imperative on the government to condense the number of zero-rated and non-taxable items.
“The recommendation suggests that we should have less zero rated items so it’s natural for that to happen. If you want a reduction of the VAT in the kind that you are talking from 16 maybe to 12 or thereabout we have to have revenues to develop the country so you have to relook at the entire revenue potential that you’ll need,” Jordan said.
As such, the Finance Minister noted that before VAT can be reduced, government has to engage in “wide consultations” to ensure it takes into consideration the views of all and how it would affect the livelihood of citizens. VAT was introduced by the then People’s Progressive Party (PPP) government in 2007 despite much public displeasure on the issue. Since then, there have been many calls by stakeholders to have the tax reduced. The now opposition PPP has also called on government to reduce the tax, with Opposition Leader Bharrat Jagdeo now stating that the tax is too high.
But Jordan said his government will not succumb to pressure and will carefully study the report of the TRC along with deliberations resulting out of Cabinet and consultations. The TRC report was handed over to government on January 18 but could not be considered by Cabinet prior to the 2016 budget presentation last Friday as it was submitted late.
“In clamouring for something, be careful what you ask for,” he warned.
The Finance Minister emphasised the need for due consideration be given and consultation done to ensure that the issue of VAT is addressed properly. Asked when consultations are likely to begin, Jordan said, “I first have to consult with my cabinet for them to look at it and for them to determine whether it is an approach that they really want. This hasn’t been done.”
If government decides to reduce VAT then Guyana’s situation could mirror that of Trinidad and Tobago where several VAT free items will become taxable, the Finance Chief added. “It is not as straight forward as people make it out to be. It is not just about reducing it from 16% and think everything will be ok, we have to re-look at the entire revenue potential needed,” he told reporters.
He added that Guyana has a long list of VAT free food items and noted too that electricity and water do not attract VAT.
“One has to put all of that into the picture when you are making a determination of reducing VAT and by how much,” the Finance Minister added.
Jordan alluded to the current “leakages” that exist in the system and said more emphasis has to be placed on the Guyana Revenue Authority (GRA) under whose ambit it is to enforce the tax laws. He called on the Revenue Authority to be proactive and ramp up its presence.
“When the VAT first started, the collections were extremely high. GRA’s lack of a presence out there has made people feel comfortable in cheating the VAT. So VAT collections are decreasing. If you sat down there and do your analysis you’d see something is wrong.”
The economy he said is growing but unfortunately VAT collections does not match the economy’s growth. “GRA has no presence, so people feel comfortable in cheating the VAT so VAT collections are increasing at a declining rate,” the Minister stressed.
Jordan added that he had hoped to see an 80 per cent tax collection rate from the current average of 65 per cent. In his budget presentation last Friday, the Finance Minister said GRA collected $34.4B in VAT but that amount represented a 5.2 per cent decline; the reason he said is the increase in the number of zero-rated items introduced in the 2015 budget.
Before assuming office last year, the APNU-AFC coalition had promised to ensure VAT is reduced.