Taxes – A Stranglehold

Tuesday’s Economic Corner

By Peter R. Ramsaroop, MBA
INTRODUCTION:

The key factors to the economic development and sustainment of any country are simple and the same from the Egyptian Empire to the American Empire.  Before there were social sciences called economics and psychology, before there were MBAs and accountants certain natural factors existed that which when honoured brought prosperity to a people.

Peter R Ramsaroop
Peter R Ramsaroop

What are these factors? These factors are mainly an entrepreneurial spirit of the people, access to capital, and low taxes. Whilst these factors are simple and clear, they often manifest themselves within the political framework of the particular society. It is the political framework of a society that either properly harnesses these factors for the overall prosperity of the country or either stifles these factors to the detriment and stagnation of the country. This concept holds throughout all societies and empires from time immemorial to the present.

What does this have to do with Guyana? Well the answer is simple; Guyana’s development is directly correlated to the political framework of the country. The political framework is much more than an abstract system of government of the country, the political framework encompasses the attitudes of the members of government and the public service of the country as well as policies that are implemented. So let me restate, Guyana’s economic development is directly correlated to the political framework of the country. A simple glimpse of history proves this. Pre Independence Guyana had a solid economy, Post independence Guyana with its socialist machinations suffered from a deteriorating economy, and the Hoyte’s Economic Recovery Programme brought about increased GDP until 1998 and since then Guyana has suffered a slump.
ENTREPRENEURS

Guyanese have proven their entrepreneurial spirit. Let me restate what I wrote in a previous essay, “We have seen the snow cone vendor, the pork knocker, the dredge owner, the peanut seller, the market stall owner, the tailor, the mixed tape seller, the fisherman, the minibus owner entrepreneur, the cooked food vendor, the educator that gives private lessons, the carpenter, the mason and the speed boat transportation owner. Recently in the IT field we have seen the Guyanese entrepreneurial spirit blossom into the development and the proper running of internet cafes. Ten to fifteen years ago, internet cafes were nonexistent in Guyana but today they largely abound solely because of the Guyanese pioneering and enterprising spirit”. In reference to capital, Guyanese also have access to capital largely because of Guyanese immigrants residing in North America and Europe.

But what has been keeping Guyana’s economy from making great strides? The answer is simply Guyana’s political framework in reference to taxes and lack of liberalization of the economy.
THE TAX SOLUTIONS:

Why taxes? High taxes are a disincentive to invest because they limit returns and the disposable income of consumers (and contrarily create an underground economy.) This results in products being expensive and demand being low. Some of Guyana’s tax rates are as follows 16% VAT, 33.3% income tax and 200% tax on new cars. This is in addition to the tax on gasoline and fuel which directly raises the costs of transportation of goods and services. A simple aphorism concerning taxes is this, “Higher taxes constrain economic activity and lower taxes free up and foster economic activity.”   The AFC Blueprint for Government calls for an overhaul of the tax system to ensure that the citizens are not being strangled.

An amicable taxing system for Guyana that would stimulate the economy would be the elimination of the income tax, reduction of the VAT to 8-10% to be pro-rated with 4% going to the central government, 2% going to the regional government and 2% to the municipal government.

An 8% tax on fuel to go directly for road maintenance and road building.

An 8% on telecommunications to go directly for the funding of the security forces.

As for duty on vehicles, it ought to correlate to the weight of the vehicle and the carbon emissions of the vehicle, in other words, since heavy vehicles cause more damage on the roads they ought to pay accordingly. Likewise if a car emits more carbon than another it ought to pay more since it is contributing to pollution much more than a car that doesn’t emit as much.   We have heard nothing from the President in his low carbon strategy on this.  Additionally 50% of the duty collected on vehicles should go towards infrastructural projects. At yearly car inspections, this will remain the criteria for car inspection with the monies collected being remitted for the same thing. This will allow for a consistent source of funds for the upkeep of Guyana’s roads. Mechanics will benefit since new and safer cars will be imported providing them with increased skills in the repair of these vehicles. Old cars will gradually be removed from the roads.  All Hybrid cars will be duty free.  Alternative Hydrogen Cells should be installed in older cars.

The fixed tax threshold that makes no provision for dependant allowances.  Provisions for families must be factored in.


CONCLUSION:

Emphasis needs to be placed on making the political framework as it relates to taxes and liberalization of the energy and telecommunications sectors more conducive for entrepreneurs. This is the only way to harness the factors of entrepreneurship and capital which will make Guyana a prosperous country.

The AFC have called many times for a complete review of our entire tax system with the goal to streamline collection and expenditures.  We the citizens feel the tax noose around our necks is getting tighter.  We are not sure how long more we can take the squeeze.   Until next time “Roop”.

Send comments to peter.ramsaroop@gmail.com

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