By Kiana Wilburg
Consultations for Budget 2019 have begun and the Federation of Independent Trade Unions of Guyana (FITUG) has already laid out a menu of things it wants the government to consider especially as it relates to taxation.
High on its list is the need for the government to re-examine tax exemptions which are given to private enterprises. FITUG urged the administration to ensure that exemptions/write-offs are predicated on job creation and aligned with national development goals.
In addition to this, FITUG said that budget 2019 comes at a time when there has been a marked increase in tax revenues. In this regard, FITUG said that statistics from the Ministry of Finance show that tax revenues have risen from $136.5B in 2014 to $171.5B in 2017. On this premise, the organization said that there needs to be a change for the better.
For Budget 2019, FITUG wants the government to increase the income tax threshold to $100,000 per month; introduce tax relief for taxpayers with dependents; remove 1/3 of the tax threshold for income earners who earn in excess of $180,000 per month and have a second tax tier set at $200,000 per month.
It also wants the government to remove VAT on electricity, water, and private health care and widen the income tax base by capturing several high income earners and professionals who may have avoided taxation.
FITUG emphasized that its suggestions are not vastly different from those which were articulated by the Tax Reform Committee that was set up by the Government soon after its election to office.
Tax reform usually starts out with the intention to make a nation more progressive. But in Guyana’s case, the opposite is being done. Some six years ago, tax measures were implemented by the former regime which opened the floodgates for increased exemptions and remissions.
Tax advisors are saying that the move was one that has made tax administration difficult and revenue loss significant.
In fact, Guyana now stands to be one of the leading countries with massive overlay of tax exemptions and remissions. Tax advisors are now calling for a major reduction in the incidence of tax holidays.
Speaking to the genesis of the former regime’s actions, the Tax Reform Commission which was established by the Granger administration said that between 2009 and 2013, two comprehensive studies on Guyana’s tax system and its administration were conducted. They opined that fundamental reform measures were proposed in both of these studies, but the recommendations were not implemented.
Instead, in 2011, the PPP Government undertook major tax policy reversals when the Fiscal Management and Accountability Act of 2003 was amended to introduce more exemptions and remissions into the tax system.
The Commission members said that countries have generally been slow to rollback tax incentives, partly because it has been very difficult to determine whether the incentives are having the desired effect or not, in the absence of data that would facilitate serious research and investigation.
The advisors said however, that a consensus has been slowly emerging that, outside of, for example, light manufacturing activities and internet-based call centre backroom services, tax incentives are not very effective in attracting foreign investment and merely result in a “race to the bottom”.
The Commission also highlighted the strong views held by the International Monetary Fund, World Bank, the Organization for Economic Co-operation and Development (OECD) and other international institutions that countries such as Guyana, should focus more on the classical determinants of investment that are possibly within their control, along with other factors that facilitate ‘doing business’ and rely less on tax incentives.
Besides size and factor resource endowment, the international organizations believe that determinants of investment should include consistent and stable macro-economic and fiscal policy; political stability; adequate physical, financial, legal and institutional infrastructure; effective, transparent and accountable public administration; skilled labour force and flexible labour code governing employer and employee relations; availability of adequate dispute resolution mechanisms; and foreign exchange rules and the ability to repatriate profits.
The Tax Reform Commission included the likes of Chartered Accountant, Christopher Ram, Commissioner-General of the Guyana Revenue Authority (GRA), Godfrey Statia, NICIL’s Chairman, Dr. Maurice Odle and Economist, Dr. Thomas Singh.
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