Finance Minister maintains VAT on water, electricity not “unreasonable”

Dec 05, 2016 News

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– says govt. stands to lose over $10B annually with other tax measures

By: Kiana Wilburg

While scathing criticism is mounting over Government’s menu of tax measures for 2017, particularly those relating to the water and electricity bills for consumers, Finance Minister, Winston Jordan maintains that these measures would not be a burden on the citizenry.
In his 2017 budget speech, Jordan announced that Value Added Tax (VAT) would be reduced from 16 percent to 14 percent.
The economist also proposed to introduce next year, a VAT of 14 percent on electricity consumption that exceeds $10,000 per month.
While VAT will not be applied to consumption up to $10,000, Jordan said that it will be applied to the full amount once consumption exceeds $10,000.
The Finance Minister also proposed to introduce a VAT of 14 percent on water use in excess of $1,500 per month. In this case as well, he stated that the $1,500 limit is not an allowance.
Jordan said that while VAT will not be applied to consumption up to $1,500, it will be applied to the full amount once utilization exceeds $1,500.

The economist told Kaieteur News yesterday that based on statistics received, the Guyana Power and Light Incorporated (GPL) has some 138,000 customers on its database. Of that amount, Jordan said that GPL informed him that some 105,000 customers pay $10,000 and less. In addition to this, he said that over 4400 businesses pay $10,000 and less per month.
As for the Guyana Water Incorporated (GWI), the Finance Minister said that similar statistics were produced which show that the bulk of the nation’s GWI customers pay less than $1500 a month.
In the end, Jordan said that the new tax measure is not one that was made in an irrational manner. He noted, too, that it will even serve to promote “some level of conservatism.”
LOSING BILLIONS
The Finance Minister stated that based on certain measures proposed in the 2017 budget, Government would actually be losing billions in revenue.
Considering the revenue implications with just four of those measures, he said that Government stands to lose over $10B annually.  Elaborating in this regard, Jordan said that the proposed reduction in the Income Tax from 30 percent to 28 percent will cost the government $3B.
Jordan said that the reduction in the Corporation Tax rate, from 30 percent to 27.5 percent, for manufacturing and non-commercial companies, will see Government losing over $7B annually while the increase in the threshold  of $660,000 per annum to the greater of $720,000 per annum or one-third (1/3) of the employee’s salary, will cost the Government some $200M.
He added that the reduction on the VAT rate from 16 percent to 14 percent will cost the government over $4B annually.
Additionally, the Finance Minister stated that Government would be losing some $150M due to removal of VAT on sanitary napkins and panty liners.
The Finance Minister acknowledged that due to the projected loses explained, other tax measures had to be put in place.
He is adamant however, that even those other measures would not be enough for the government to recover the billions it stands to lose.
The Finance Minister stressed too that on several occasions last year, he did indicate that reduction in VAT would have implications. In this regard, he said that VAT would be added to other items.
He also made the point that even though Government has proposed a number of tax measures for the new year, it has actually increased the spending power of the citizenry “significantly” with its Income Tax and threshold measures.

THE BUSINESS COMMUNITY
Several members of the business community have voiced their concern regarding the numerous tax measures that the Government proposes to implement for 2017.
The Private Sector Commission took issue with the fact that Jordan proposes to expand the list of exempt items and eliminate all zero-rated items, with the exception of those pertaining to exports and manufacturing inputs.
The Commission is of the view that this will have a troubling domino effect to the point that there could be an increase in prices for basic goods.
Jordan however believes that the business community is not being entirely “honest” in this regard.
The Finance Minister noted that even though over 20 items were zero-rated in the 2015 budget, the benefits were not passed on by businesses to the consumers.
The items which were zero-rated in 2015 included; yogurt, cereals, fresh carrots, milo and ovaltine, nestum, mustard and mayonnaise, locally-produced fruit juice, locally-made chowmein, vinegar, locally-made uncooked pasta, ketchup, chicken sausages in packets, locally produced Chinese sauce, baking powder, liquid detergent, household cleaning agents, rolls of paper towel and computer printers for non-commercial use.
The estimated loss of revenue was $680 million.

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