VAT-related price increases trigger widespread consumer concerns

Controversy associated with the January 1, 2007 implementation of the new Value Added Tax (VAT) persisted throughout the week as public disquiet grew over glitches in the application of the new tax regime.

While the Guyana Revenue Authority (GRA) issued a press statement on Tuesday January 2 listing seven “areas of concern” discovered by VAT staff during the trading day Stabroek Business was tracking what appeared to be the most persistent consumer concern – VAT-related price increases to certain categories of goods the cost of which, they were contending, ought to have come down in view of the abolition of the consumption tax.

Throughout the week retail stores in the city had to contend with queries from irate consumers whose primary concern appeared to be that the new 16 per cent VAT had been “tagged on” to existing prices without removing that portion of the cost of the items accounted for by the now defunct consumption tax. On Wednesday Stabroek Business even discovered some cases in which old prices had been increased prior to the application of the VAT.

Last Tuesday’s GRA press release reiterated earlier statements by President Bharrat Jagdeo that businesses will benefit from “stock relief” that will in effect mean that they would be reclaiming the consumption tax that they would have paid on stock received in December. The GRA’s statement said that businesses would be monitored to ensure that consumers benefit from stock relief.

At several downtown business houses, however, proprietors were insisting that the existing VAT regulations did not dictate that they reduce their original prices before applying the new tax.

Several businessmen contended that the application of stock relief to goods acquired in December only had meant that they could do nothing about reclaiming consumption taxes paid on stock that they had been holding prior to December.

When Stabroek Business spoke with a VAT Secretariat official on Wednesday this newspaper was told that while the price increases associated with the retention of the amounts representing consumption taxes plus the addition of the new 16 per cent was undesirable there was nothing in the existing regulations that precluded the practice. The official told Stabroek Business, however, that the GRA will be monitoring the practice with a view to implementing a “name and shame” exercise that would, in effect, make public the names of those business houses that were denying consumers the reduced prices that ought to accrue from stock relief.

Late on Wednesday Stabroek Business spoke with an experienced accountant who has been assisting several businesses in ensuring their VAT-readiness. The source confirmed that apart from the fact that there was nothing in the regulations that precluded businesses from adding VAT to existing prices or even increasing current prices before applying the new 16 per cent tax those businesses were simply applying an interpretation of the VAT regulations that worked to their advantage.

The source told Stabroek Business that a number of business houses had expressed concern over the fact that while they were holding large quantities of stock acquired prior to December last year the promised stock relief was only being applied to stock acquired in December. He noted further that since the “credit” for goods acquired in December would last for a three-month period that ends in March businesses have now been placed under pressure to dispose of those stocks within the three-month time frame if they are to benefit from the credits. “Whatever stocks acquired in December remain unsold by the end of March will effectively represent a loss to businesses,” the source said. According to the source the immediate focus on disposing of goods acquired in December last year would mean even longer delays in selling goods acquired prior to that time.

The source also said that information on the new VAT regime disseminated by the VAT Secretariat had neglected to make the point that credits based on consumption taxes were only available to manufacturers and importers. This, according to the source, is probably “the biggest problem” confronting businessmen. “In effect, those businessmen who are holding stocks of imported consumer goods purchased from local distributors and manufacturers and on which they did not actually pay consumption taxes will not be entitled to the credits.”

Several months prior to the implementation of VAT the Guyana Revenue Authority (GRA) launched a public information campaign targeting both the business community and the consuming public. But according to the source the campaign “was both inadequate and, sometimes, misleading” insofar as it neglected to pronounce on several issues that were even now the cause of public disquiet. The source conceded that in the immediate term consumers are likely to feel the effects of many of the problems associated with the implementation of VAT since in the final analysis end users of goods and services cannot pass on the additional charges associated with the new tax.

During the course of the week sections of the business community were again raising questions about the capacity of the GRA to effectively monitor VAT implementation, particularly during what one businessman described as “this delicate and challenging initial stage. Stabroek Business has learnt that up to Wednesday last the GRA had dispatched seven monitoring teams to areas in Georgetown, East Bank, East Coast and West Coast, Demerara to oversee implementation and that teams were due to travel to Berbice on Thursday to undertake similar inspection and monitoring exercises aimed at correcting teething problems associated with the implementation of the new tax regime.