Questions and issues:
introduction of such revolutionary concepts, some critical issues and
questions should be addressed. Here are some sample questions drawn from a
paper presented by Professor Richard Bird, the world's leading authority on
taxation in developing countries at the First Global International Tax
Dialogue Conference on VAT held in Rome last month. In my view these are
issues which ought to have been addressed prior to the plunge and it does
not seem too late for them to be given consideration. In that regard I am
particularly disappointed that with VAT being so important to this country
at this stage, the Government did not seize the opportunity to participate
in this conference which brought some of the world's top VAT experts
together for two days. Think of the missed networking and knowledge
are the principal objectives for the introduction of VAT?
is the best model of VAT appropriate to this country?
3. Is the
IMF-favoured VAT with a low rate and very few exceptions the option which
this country will pursue?
does tax-neutral mean in the context of rate-setting? Is it neutral for all
or will there be losers and winners?
are the revenue implications for Guyana of trade liberalisation including
CSME and the FTAA and to what extent will the proposed system respond to the
anticipated revenue problems?
effective is the proposed system in economic, equity, and administrative
terms and what are the alternatives which have been considered and
relevant is the proposed system to the particular circumstances of Guyana
with a culture of evasion, a large informal cash economy, widespread
smuggling and a low level of compliance?
the performance of the GRA since the merger of the Customs and the Inland
Revenue and the problems currently experienced with administering the
existing taxes, can it assume additional responsibilities and administer VAT
sufficiently well to make the introduction of the tax worthwhile?
9. Is VAT
the efficient, simple, revenue-raiser as some claim or as others argue so
inequitable in its application as to exacerbate social and political
VAT provide a way to tap the informal sector or does it instead tend to
drive even more into that sector?
VAT represents a fundamental shift from taxing income to expenditure, will
income and corporation taxes be reduced and if so when?
the government see this as the end product of tax reform or should it be
part of simultaneous, wider tax reform?
what extent, if any, does the proposed system benefit from the experiences
of other CARICOM countries and have we sent any of our people for training
in any of those countries?
the haste to introduce VAT when all evidence from around the world tells us
that effective implementation cannot be achieved in the timeframe which has
the business sector carries the principal responsibility for the collection
of the VAT would the government respond favourably to a request from the
sector for more time before the implementation?
legislation proposes the repeal of a number of indirect taxes including
Consumption Tax, the Travel Voucher Tax, the Hotel Accommodation Tax and the
laws relating to service tax, premium tax purchase tax, entertainment tax
and telephone tax. These will all be replaced by VAT and welcomed by
manufacturers who hopefully will find the likely reduced rate a spur to the
sector. In the GMA presentation, I had noted that while the VAT will extend
to the bottling of juice, aerated and alcoholic drinks, it is a fair bet
that excise and higher taxes on alcoholic beverages, cigarettes and luxury
items will remain. In fact on the day of the Parliamentary Debate, Bill # 4
of 2005 Excise Tax Bill was circulated. The objective of the Bill was stated
in its Explanatory Memorandum as to 'ensure that the yield under the
proposed new system (VAT + Excise Tax) would approximate the revenue
collection under the current system'. (Editor's note: this bill has been
sent to a Select Committee).
essence of a VAT is that it is charged on a wide range of transactions, with
a mechanism for offsetting tax paid on inputs/purchases against tax charged
on outputs/sales. What makes VAT so different is that it seeks to tax
expenditure and in theory at least the citizen can choose the simple device
of forgoing the expenditure if she wants to avoid the tax. The fear is
however that unlike those countries which reduced personal taxes and reduced
corporate tax rates on the introduction of VAT, there is every indication
that we will maintain personal income tax and corporation tax at their high
rates which make evasion worthwhile. The tax/GDP ratio which is already very
high may quite likely rise, not only taking money from the private and
domestic sector but operating as a deterrent to badly needed growth. It
would be a major disappointment if the Government fails to appreciate this
point in its haste to deal with VAT and VAT alone!
does appear to be an intention that the combined effect of the VAT and the
new Excise Tax will be revenue neutral. But can anyone confidently state
that the tax will be revenue-neutral and at the same time say that the
rate(s) have not yet been determined? Or respond to a representation for a
category of item to be classified as zero-rated rather than exempt? Have the
authorities been collecting and analysing data to enable them to do this
type of modelling to determine the best structure for a Guyana VAT? We have
had years to do this type of serious economic modelling and vague promises
that the tax will be revenue neutral is either ill-informed or is based on
information which should be shared with the public.
Consistent with similar legislation, the Act provides for taxable,
zero-rated and exempt categories. Zero rating allows the removal of the
effects of VAT usually from a particular good or service - usually for
social or economic reasons - and permits a claim for a refund of input VAT
i.e. VAT suffered on its purchases even though it has no output VAT i.e. VAT
charged on sales. My reading of the Bill suggests that such a credit only
becomes a refund until after six months, which can play havoc with an
entity's cash flows - a fact that is often lost on the administrators of
existing direct taxes. And is it fair that refunds due attract interest at
the rate of 1% per month while unpaid taxes attract interest at 2% per
other hand, since no tax can be charged on exempt items and since there is
no refund of the tax suffered on purchases, the seller will simply pass the
cost of his input VAT to the consumer. This is why it is so important that
certain categories of items are classified as zero-rated rather than exempt.
When Trinidad introduced VAT in 1990 prescription drugs, unprocessed food
such as flour, bread, milk and margarine, live animals, livestock feed, seed
fertilizers and farm machinery were zero-rated. This list has substantially
increased since 1990. My understanding of the Guyana Bill is that these
items are not zero-rated and will therefore attract VAT with the obvious
implications for the cost of living and consequences for the poor.
issue of practical significance, is whether the tax is paid on the accruals
or cash basis? Let us take a quick and simple example. Company A pays VAT on
its purchases for March amounting to $20,000 and has fully settled its
bills. It gives extended credit on sales on which VAT of $35,000 is charged.
However, its customers paid only on invoice with VAT of $13,000. Is the law
going to insist that Company A pay over $15,000 (output VAT of $35,000 less
input VAT of $20,000) or that the Company recognize a VAT refund of $7,000
($20,000 -$13,000). This is an issue with practical cash flow implications
particularly for those companies which grant extended credit such as
hire-purchase companies which I understand have not been consulted on the
At a time
when the GRA is still trying to cope with the merger of the two principal
revenue-collecting agencies, it seems at best a major risk to impose on it
such another responsibility. The present Commissioner General is on record
as lamenting the billions of tax revenues under existing laws which go
uncollected each year. Is it not far more logical that the additional
resources being made available by the Government and lending institutions to
the GRA be concentrated towards collecting these taxes, rather than
deploying the existing resources towards a new and more challenging tax?
the greatest sympathy for the GRA and its staff who operate in what
sometimes appears to be an unreceptive if not hostile environment with
little understanding, co-operation or empathy from its stakeholders. I
believe however that the GRA has not yet justified the billions which have
been invested in it. Indeed ,if we use the indicator of revenue collected
for every dollar spent, the yield on every dollar spent has dropped by a
troublingly large factor. Is VAT likely to make the situation better or
is singularly vulnerable in never having had a single year's report tabled
in Parliament as required by law. Is this the mark of 'transparency and
governance', to use the words of the IMF document referred to earlier?
provides for appeals to the Commissioner General, a VAT Board of Review and
a judge in Chambers. The courts are overloaded and may have little time for
VAT and the best recourse will be the CG and the Board of Review.
training and the expertise available to address the multitude of challenges
which are likely to arise in the first few years of VAT? I am concerned that
currently and in contravention of the Income Tax Act there is no Board of
Review. What is there to comfort us that the GRA and the Minister of Finance
would be more diligent with respect to the VAT Board of Review for which
there is even less expertise?