Nov 29, 2016 News
By Abena Rockcliffe-Campbell
Citizens who thought that the reduction of Value Added Tax (VAT) would have strengthened their changes of realizing “the good life” promised by the APNU+AFC government, were given a rude awakening yesterday after listening to the presentation of Budget 2017.
Dreams were dashed as it was announced that while VAT will be reduced, water and electricity—two essentials—will now attract VAT.
A promise to reduce VAT was dangled in front the faces of Guyanese in the lead-up to the 2015 elections. The APNU+AFC had promised that within 100 days after assuming office, it would have reduced VAT which was implemented under the PPP and has proven a burden to the poor and average man. Over a year and a half later, Finance Minister Winston Jordan announced the arrival of the reduction. VAT has been reduced by 2 percent. But will that be of any benefit to the poor?
Many on social media called the fact that VAT was reduced but added to electricity, tantamount to giving with one hand while taking with the other. But it is a little more than that.
During his speech, Jordan himself admitted that taxation is a strain.
He admitted that the economy is characterized by a tax system that has high and multiple rates and inequality. “As a consequence, smuggling, tax avoidance and tax evasion are rampant.”
The Finance Minister even noted that because of “high and multiple taxes,” the existence of legitimate businesses is threatened, while labour productivity suffers from a tax system that acts as a disincentive to greater effort.
“This has led to ever increasing demands for tax concessions, thereby distorting resource allocation while weakening the tax base.”
Despite such acknowledgements, Jordan was bold to announce the additional VAT that will be felt by businesses that already complain about the energy cost. It was because of the complaints about already high electricity; the PPP had proposed the Amaila Falls Hydro-electricity project, one that A Partnership for National Unity (APNU) is following up.
Yesterday, Jordan said that his announcements are keeping with APNU+AFC promise made in the Manifesto, and based on recommendations of the Tax Reform Committee and the Caribbean Regional Technical Assistance Center (CARTAC) study.
So in addition to the reduction, from 16 percent to 14 percent, He announced an increase in the VAT threshold.
“I propose to increase the VAT threshold from $10 million to $15 million. It was found that a significant number of persons were unable to maintain proper records to meet the minimum threshold requirement for VAT registration. As such, this measure will allow the GRA to concentrate on the cohort that makes the bulk of VAT payments, since there will be a smaller tax base and consequently less VAT registrants to administer,” said Jordan.
Jordan also proposed the introduction of the 14 percent VAT on electricity consumption in excess of $10,000 per month. He was keen to note that while VAT will not be applied to consumption up to $10,000, it will be applied to the full amount once consumption exceeds $10,000.
Water, an absolutely essential commodity, will also attract VAT.
VAT will be attached to water consumption in excess of $1,500 per month.
Just like electricity, Jordan explained that the $1,500 limit is not an allowance. While VAT will not be applied to consumption up to $1,500, it will be applied to the full amount once consumption exceeds $1,500.
The attraction of VAT to basic commodities such as water and electricity will certainly have a domino effect. While the poor and average man may complain about the direct effect they may feel when have to pay the tax, the real squeeze, so to speak, will be felt through the domino effect.
Businesses, in order to sustain a profit, may feel the need to raise prices. About 90 percent of businesses depend on electricity. The manufacturing sector, fast food joints, media, laundries, stores, movie theatres, all use electricity and may feel the need to hike prices.
Water purifying facilities will feel a double effect in paying more on water and electricity; so higher prices for drinking water and local juices are to be expected.
The tax on electricity may force persons to gravitate towards solar energy. Indeed this is a direction the government wants businesses to go in.
Jordan, in his presentation, reminded of a charge given by President David Ganger for a transition towards greater renewable energy use.
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