Businesses are more concerned about the impact of Value Added Tax (VAT) on consumer spending than issues such as money laundering, smuggling and fuel dumping, according to the 2008 Guyana Business Outlook Survey.
And over half of the 74 businesses that responded to the survey are not confident that the economy would improve in 2008. Chartered Accountants Ram & McRae, which conducts the annual survey, noted that confidence in the economy had fallen from last year’s five-year high.
Some 400 electronic questionnaires were sent out for the survey and there were 74 responses. Ram & McRae’s Managing Partner Christopher Ram launched the 2008 survey at the company’s office yesterday afternoon, said this represented the largest number of responses in the 13 years the survey has been conducted.
The responses came from the agriculture, finance, manufacturing, distribution and construction sectors with turnover ranging from under $50 million to over $1 billion, with the former making up the majority of the participants.
Nine questions were put to respondents in relation to VAT, which was implemented in January and among their concerns, in ranked order, were: its impact on consumer spending; rate; absence of corresponding adjustment to rates of other taxes; inflationary effect and the absence of information on tax collections.
“It’s clear that the rate is too high,” Ram said in response to a question, adding that it is “seriously retarding the growth and development of the country.” He called on the government to stand by its commitment and make VAT a revenue neutral tax.
In the 2007 survey, 54% of the respondents had predicted that VAT would not affect their ability to compete. For the 2008 survey, expectations remain broadly in line with those predictions; 56% of the respondents said there was no change in their expectation, but 39% saw greater difficulty competing in 2008, compared to 37% in 2007 and 4% felt that competing would be easier in 2008 compared to 9% in 2007.
Meanwhile, 58% of the respondents indicated that VAT had a negative impact on the level of their business; 35% reported no impact; 6.8% or five respondents said VAT resulted in a slight increase in the level of their business.
“The results of the survey indicate that a number of fears expressed by citizens and stoutly resisted by the government have in act materialized and it is perhaps not too late for a review by government of the more critical VAT issues,” the report said.
“While VAT is not a tax on business; its contribution to inflation and the purchasing power of consumers is affecting turnover and profitability.”
Confidence in the economy for 2008 was also low.
Thirty-eight of the respondents said they were “not confident” that the economy would improve in 2008, compared to six in the 2007 Survey. Thirty-two were “fairly confident” it would improve compared to 22 last year and four were “very confident” compared to seven in last year’s report.
Eight of the 74 entities or 11%, projected a scaling-back of their operations; 24 respondents or 32% projected no change, while the remaining 42 or 57% proposed increasing the scale of their operations.
However, 2008, 55% of those who plan to scale-up operations said they did not plan to raise any capital to do so.
Asked about this, Ram said it requires further study and analysis, but added that it may be that commercial banks are not pursuing bankable projects as aggressively; a lot of liquidity or money laundering.
Those businesses that plan to raise capital will do so to: fund new products and services (19% or 26%); embark on a capital expenditure/expansion programme (15% or 20%); expand into new geographic markets and fund current operations such as working capital (given by an equal number of respondents 13% or 17.6%). Of these 17.57% said they would pursue both local and overseas sources, 21.62% local sources and 5.41% overseas sources only.
From a list of 21 issues, respondents were asked to identify those that are likely to have the most and the least impact on their businesses in 2008. Their answers were ranked as follows: fuel prices, electricity supply and rates, consumer spending power; inflation; and the exchange rate of the Guyana dollar. By contrast the issues identified as having the least impact were: money laundering; the Commercial Court; smuggling and fuel dumping; interest rate; and availability of financing.
