VAT, Excise Tax rake in $17.1B in six months

Government revenue from Value Added Tax (VAT) and Excise Tax (ET) stands at $17.1 billion for the first six months of this year, which is 68.95% of the projected $24.8 billion collection for 2007.

Tabling the Mid-Year Report in the National Assembly yesterday, Finance Minister Dr Ashni Singh also that target has now been revised to $30.5 billion and the government’s total revenue, which had been budgeted at $64.9 billion, has been revised to $70.7 billion.

Consumer groups and opposition parties have long called on the government to reduce the VAT rate from 16%, but those calls have gone unheeded.

Although some basic food items are zero rated, a number of essential daily items are not exempt and prices continue to rise for the exempted and the standard rated.

According to the report, higher imports and less tax evasion are reasons for the huge surplus, which the government had said would not have been, in light of the neutrality of the tax.

“The increased collections in import duties and the level of collections in value added and excise taxes reflected substantial increases in several categories of imports as discussed earlier,” the report said.

Some of the points made early on in the report were that, “imports of consumption and capital goods increased by 36.3% and 24.8 percent respectively to US$122.8 million and US$117.5 million during the first half of 2007, while imports of intermediate goods reflected an increase of 7 percent over the same period in 2006.”

In addition to these factors “which would have contributed to the level of revenue collection, the value added tax may also have substantially reduced or discouraged evasion,” the report stated.

Questioned during a short recess, Singh insisted that the tax was neutral and claimed that this has been an extraordinary year in the light of the many activities like Cricket World Cup and the Rio Summit.

Inflation

According to the report, the projected 5.2% of inflation for this year was revised to 9.6%. Inflation was 13.3% as of July. The government maintains that 6.6% of the inflation rate was a result of the misapplication of the VAT in January. The report noted as well that global economic developments led to inflationary pressures in the first half of the year as a result of the combination of rising world food and fuel prices. These developments, it said, were transmitted to the domestic market given Guyana’s dependence on imported fuel, inputs for agriculture and manufacturing and certain food items, and were compounded by initial adjustment costs arising from VAT implementation.

Revised growth at 5.5%

The report noted that the economy recorded real growth of 5.8% in the first half of this year as compared with 3.3% growth for the same period in 2006, and projected growth for the year is now revised upwards to 5.5%. Earlier this year, the government projected the economy to grow by 4.9%.

For the first six months, growth was recorded in the sugar sector at 11.7%. In the rice sector it was at 19.5% for the first crop, but an expected shortfall in the second crop would see overall production similar to last year. The livestock sector grew by 12.7%, but overall growth is pegged at 2%. Fisheries recorded a 20.3% decline and growth is revised downward from 2% to 0.3% overall. The forestry sector declined by 5% after it was projected to grow by 5% for the year, but growth was upgraded to 6% on the grounds of a shift to higher value products. The mining and quarrying sector grew by 20.5% after a projected 3.6% growth for the entire year; all sub-sectors except diamonds, which declined by 11.8%, grew.

Meanwhile, manufacturing declined by 10.2% and now growth is revised from the projected 4% to 1%. Financial services recorded growth of 6.2% and growth in the sector was revised from 4.3% to 7%. The distribution sector grew by 10.7%; transport and communication by 10% and engineering and construction by 6.6%.