Latest update March 29th, 2024 12:59 AM
Feb 22, 2017 Features / Columnists, Peeping Tom
Minister of Finance Winston Jordan has laid out an explanation for the imposition of VAT on private education. One of his positions is that VAT is a fiscal tool and not a cure for social ills, but that the proceeds from the collection of VAT will be used to correct social ills.
No tax can ever been seen as a means to cure social ills. What the Minister means is that it can be used in order to effect changes in behaviour relating to social ills. For example, if there is a problem with alcoholism in society, then the government may seek to impose a tax on alcoholic products in order to discourage consumption.
The Minister, however, needs to be reminded that it was he who assigned to the VAT certain social functions. It was he who, when the VAT was imposed on the consumption of electricity and water above certain thresholds, indicated that the tax would have the effect of promoting conservation. In other words, the VAT was being used to effect a change in behaviour to address a social ill – the wastage of water.
The argument therefore that VAT is a fiscal tool does not hold up to scrutiny. The APNU+AFC coalition had called for a reduction in VAT when in opposition, since the parties said it was an albatross around the necks of the people. They have taken two years to reduce it by 2%.
The PPPC which had invited the then APNU+AFC to submit additional items on which to zero rate the VAT, did not use the VAT only as a fiscal tool. The PPPC also tried to cushion the effects of the VAT on the small man by zero-rating a number of items, including basic foodstuff, health and education. There was no VAT on water, electricity and transportation.
APNU and the AFC when in opposition were opposed to merely adding items to the exempt and zero rated lists. They called for a reduction in the rate. But when they got into power, their approach was no different to that of the PPPC. They added items to the list of zero–rated products.
The Minister goes on to state that the allocations for the Ministry of Education were increased in the 2017 Budget. In other words, the tax measures imposed allowed for greater allocations to the education sector.
The Minister needs to be reminded that the allocations for public education are increased almost every year and this was achieved under the APNU+AFC coalition government, without an increase in the rate of VAT.
But the Minister’s argument cannot be left there. If the argument is taken to its logical conclusion, then it reads as follows: we are widening the tax base –which means taxing private education – in order to provide a better public education. In other words, a tax on those who can afford private education will contribute to increasing the allocations for public education. Does this not imply that the rich and middle class – who can afford private education – are being used to improve public education?
He then goes on to state how private schools will benefit from the new regime of tax amendments. He says, for example, that prior to the changes, private school providers had to claim refunds of VAT imposed on a wide range of school supplies. Now, all of these items have been moved to the Exempt Schedule, which means that no VAT is charged and none has to be refunded.
This does not of course ease the burden on the schools. It just reduces the administrative costs of GRA. Also, for students attending private schools, the cost of bulk of the educational materials used by them are borne by their parents and these were, in any event, already free of VAT.
Parents and the schools are not complaining about educational materials. God forbid if conditionalities are imposed on their exemption from VAT!
Parents and schools are complaining about the VAT on tuition fees. It is the largest expense which parents have to bear to send their children to private schools. The 14% will hurt these parents. It may force many of them to seek public education. It will affect, in the medium-term the enrollment in private schools because, particularly poor parents who may have dreamt of sending their children to private schools, will have to foreclose on those dreams.
The Minister is correct when he points out that the burden of the tax falls on the payee rather than the school. But it affects the school, because the administrative costs of running a private school is spread across the total school population, and if the increase in VAT has now to be spread across a diminished population (because less parents can afford to enroll) then it increases even further the cost of private education and the enrollment levels.
The suggestion that the private schools should consider absorbing the VAT, just as how the CJIA and GT&T are doing, is tantamount to asking them to absorb the VAT, which really defeats the function of the tax which is to be applied on the level of value added.
The VAT as applied in Guyana is a tax on consumption. The Minister’s suggestions on absorption will turn it into a tax on gross profits. Absorption of the VAT, in the case of private schools, means reducing the cost of tuition, which by 14%, will bankrupt the private schools.
Many of the private schools which are tax exempt institutions are actually using their profits to provide subsidies for children who cannot afford to pay for private education or who have been granted scholarships by these schools. Asking them to absorb the VAT will hurt those poor students who are enjoying subsidized private education.
THIS IDIOT TELLING GUYANA WE HAVE NO SAY IN THE 50% PROFIT SHARING AGREEMENT WE HAVE WITH EXXON.
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