…tax-free vacation allowances for private sector employees

GOVERNMENT in keeping with its commitment to better the lives of Guyanese unveiled its $267.1B budget for 2018 which among other things includes budgetary measures to reduce the tax burdens on citizens.

Chief among the tax breaks are the removal of the Value Added Tax (VAT) on education services, the removal of tax on personal vacation allowances, and tax amnesties, among other measures.

In a nearly four-hour-long presentation before the National Assembly, Finance Minister Winston Jordan emphasised his government’s commitment to achieving and maintaining fiscal sustainability through an efficient and effective tax regime that promotes growth and development. In a relatively quiet atmosphere, Jordan explained that the 2018 budgetary measures will improve the country’s competitiveness while supporting the business sector. He said too that to achieve the objective, it is imperative that there is a constant review of the tax system and the streamlining and modernising of the tax administration.

The Finance Minister said his administration intends to broaden the tax base and to use the revenue gains “to lower marginal tax rates to, among other things, improve equity in the tax system, principally, lowering the income and other tax burdens on the low- income groups”; something the administration started in Budget 2017.

Vacation allowance
Presented under the theme, “The journey to the good life continues,” the Finance Minister announced that persons who work for part of a year can currently claim only for part of the Personal Allowance of $720,000. However, he has proposed that the minimum Personal Allowance of $720,000 be given in full, regardless of whether a person works for the whole year or a part of the year. Jordan said the tax deducted by the employer and remitted to the Guyana Revenue Authority (GRA), will be refunded to those employees whose income did not reach $720,000. This relief will clearly benefit those low-income earners who may have been unable to work for the entire year.

“This new measure will help, also, to simplify the personal allowance calculation, thus easing the administrative burden for GRA. The revenue loss is estimated to exceed $400 million,” the Finance Minister stated. This measure takes effect from Year of Income 2018.
Additionally, Jordan proposed that private sector employees enjoy the vacation allowance tax-free to use it as they see fit. Currently, only public sector employees enjoy a tax-free vacation allowance, whether they spend their vacation here or abroad.

Private sector employees are only given the allowance to the extent of the cost of the passage to travel abroad. “… A tax-free vacation allowance to a 76 private sector employee will be allowed up to a maximum of one month of the employee’s base salary. The GRA will scrutinise these allowances closely to ensure that the previous abuse of this benefit-in-kind, where employees were being paid huge vacation allowances, in lieu of salaries, does not recur,” the minister said of the measure which takes effect from January 1, 2018.

A slight increase in the Old Age Pension for 2018 was announced. With effect from January 1, 2018, Old Age Pensions will rise to $19, 500 from $19,000 representing a 49 per cent increase in two and a half years. Similarly, Public Assistance will be increased to $8,000, approximately 36 per cent growth over the same period.

Several measures were also proposed to support the private sector and to stimulate economic activity. Among those are the restriction on the importation of pine wood and pine wood products, which comes into effect on January 1, 2018. Guyana’s representation to the Council for Trade and Economic Development (COTED), an organ of CARICOM, for the suspension or increase of the Common External Tariff (CET) on Pine Wood and Pine Wood Products, from 5 percent to 40 percent, has been approved. The new tariff will be in effect from January 1, 2018 to December 31, 2019.

Additionally, Jordan announced that from January 1, 2018, the supply of logs and rough lumber to the sawmilling industry will be exempted from VAT. This, he said, would improve the cash flow of operators in the industry by at least $80M, while some $120M has been set aside to begin a forest inventory. The Finance Minister said too that $50M has been allocated in the 2018 Budget for government to partner with the private sector in a Public/Private Partnership, to establish a Dimension Stockyard.

Mining concessions
Meanwhile, in the gold-mining sector, Jordan acknowledged the contributions mining has made to the Gross Domestic Product (GDP), income and export earnings and employment. As a result, he said his government has enabled small and medium-scale miners to benefit from tax concessions on machinery, equipment and fuel; and the waiving and remission of taxes on vehicles, based on gold declarations.

For 2016, a total of $47.6M in taxes was waived on motor vehicles, while, for 2017, such waivers have amounted to $64.4M for personal motor vehicles and $188M for fuel, so far. Many operators in the sector have been permitted to hold foreign exchange retention accounts; instead of the 10 per cent, they have been allowed unlimited retention of foreign exchange to purchase mining equipment.

In the housing sector, Jordan in an effort to encourage the building of low-cost houses, proposed to exempt VAT to complete housing units costing up to $6.5M that are built by or on behalf of the Central Housing and Planning Authority (CH&PA) or any other approved entity. In the area of transportation, government in recognition of the need and ability to acquire appropriate vehicles at affordable prices has proposed to reduce rates of excise tax on the importation of overland transportation used for tourism purposes in Regions One, Seven, Eight and Nine. This concession, the finance minister stated, will be applicable to vehicles between 2,000 cc and 4,000 cc that are used exclusively in the tourism sector for the transport of persons by incorporated entities that have been operating in those regions for at least five years.

For vehicles 2,000 cc to under 3,000 cc and which are less than four years old, the Excise Tax would be slashed from 110 per cent to zero; for vehicles over 3,000 cc to 4,000 cc and which are less than four years old, the Excise Tax would be reduced from 140 per cent to zero. Additionally, Jordan proposed to grant free vehicle licences to motor buses and motor vehicles that operate in Regions One, Seven, Eight and Nine, along with the removal of VAT on vehicles that are less than four years old, which are used to transport more than 21 persons.

Removal of excise tax
Moreover, the minister also proposed removal of the Excise Tax flat rate of US$6,900 and replace it with a VAT of 14 per cent, on vehicles four years and older that carry between 22 and 29 passengers. In keeping with his administration’s green agenda, Jordan reminded that in Budget 2017, hybrid vehicles below a certain engine capacity had benefited from tax concessions, while there were no engine- capacity limits for electrically powered vehicles.

However, in an effort to further reduce emissions, he proposed an exemption on Excise Tax on vehicles principally designed to accommodate Liquefied petroleum gas (LPG gas), with an engine capacity not exceeding 2000 cc and not exceeding four years old from the date of manufacture to the date of importation. The Finance Minister also recommended that Part III B (i) of the First Schedule to the Customs Act, Chapter 82:01 be amended to exempt machinery and equipment from the payment of Customs duties to set up 75 refilling stations for such vehicles, as determined by the Commissioner-General. The VAT will still be payable.

In the case of small businesses, the sum of $100 million has been allocated in Budget 2018 to replenish the Small Business Development Fund. Jordan noted that many small businesses do not adequately utilise the various concessions available under the various Tax Acts, the Small Business Act and those offered through Investment Development Agreements (IDAs). “In particular, small businesses do not get the benefit of concessions under the Small Business Act. Exemptions go a-begging and the various allowances under the Income Tax Act, the Income Tax (in Aid of Industry) Act and the Customs Act are often not utilised,” he stated.

As a result, the Ministry of Business, through GO-INVEST, and the Ministry of Finance, through GRA will be embarking on an intensive education programme aimed at sensitising small businesses to the availability of these concessions and how to acquire them.
Given the large number of businesses that operate without licences as a result of the difficulties in obtaining some requirements, which include approved building plans, and safety and sanitary certificates, the finance minister has proposed that a Provisional Licence be issued for a period not exceeding two (2) years, for premises conducting some of the following businesses: Grocery Shops, Variety Stores, and Snackettes.

“It must be noted that this Provisional Licence cannot be used to acquire any additional licence such as a Liquor Licence. In addition, upon expiration of the Provisional Licence, no extension will be granted,” Jordan stated. This measure takes effect from January 1, 2018.