Is it a Value Added Tax or a Sales Tax?
Even as I applaud Mr Khurshid Sattaur’s letter published May 7, I am meditating its implications for application of the VAT. I am moved to address to him an enquiry I put late last year to a few acquaintances among businessmen, public servants and politicians (note overlapping categories).
Having had no enlightenment since then, may I hope that the revival of these issues in your columns will lead to abating some of the concerns I still share with your other correspondent, Mr Alfred Bhulai.
There is lately some talk in high places of examining the application of the Value Added Tax in the Guyana economy. It has been a puzzle to me, and to the few officials I have chatted with about it, that the VAT is charged on the full price of goods at each stage of the commercial system. The consumer is paying far above the original cost of goods, but my problem is that the tax he pays is on more than the Value Added. That may be good for the government revenue, but no one knows whether this is the intent of the law.
For local manufactures not VAT-exempt, the distributor pays 16% on the producer’s full selling price, not just on the value added by transforming the materials that the factory purchased. For imported goods, the importer pays 16% on the full CIF value, not just on the cost of transporting the goods to the port of entry. Then, whenever the goods change hands along the commercial path to the consumer, VAT is collected at the rate of 16% of the gross selling price.
Raw materials purchased by local factories are usually VAT-exempted as manufacturing inputs. The finished or imported goods may be sold through distributors, wholesalers and retailers to the end-user, and each reseller may deduct from his VAT remittance to the GRA the amounts he paid as VAT in the same reporting period. This means the VAT should be charged only on the seller’s expenses in procuring, stocking and selling, plus his net profits.
So the VAT is not compounded: if every merchant deducts the tax he paid, we are not paying taxes on taxes. But it seems all are paying taxes each time on the full value of the goods, not just on the value added at each transaction. The result is that retail prices often exceed ex-factory prices by quite shocking margins. Similarly, an imported item can end up costing the consumer more than twice its original cost from the exporter.
The multiple taxation is reduced if the consumer buys higher up the chain from the importer or local manufacturer. Or if, for instance, a retailer buys direct from the factory or importer instead of a wholesaler, his cost price is reduced. The state loses one layer of VAT, but stands to gain by income tax on the extra profit the retailer can make.
However most of the goods we buy pass through several commercial hands, all entitled to make a living and be taxed on their earnings. But taxed on the same value again and again? Did our revenuers have this in mind when the VAT was first imposed? If so, why was it called Value Added Tax rather than Sales Tax?
That is, as far as I can see, the way our VAT works: when it works. I hope there’s something that I’m missing, because, as a consumer, I have a nasty feeling that my cost of living is being affected in a way that surely can’t be intended by the statute (which one, by the way?) or by equity. Will someone please show where I am misinformed, or just wrong, or crazy, yet again.