A reduction in VAT would not benefit those earning below $40,000 per month because their consumption relates to items which are exempt or zero rated

Dear Editor,

I read with considerable interest, the content of a letter captioned ‘No reduction in VAT’ (SN, April 1) which was written by Ms Lurlene Nestor, a frequent contributor to the letters column of your newspaper. In order to dispel the many misrepresentations made in this letter, I trust that you would allow me space to respond.

The letter, apart from making reference to the fact that the National Budget did not offer relief from the payment of the 16% Value Added Tax (VAT) rate, made the erroneous claim that the President promised to reduce the rate of VAT. The letter also rather contentiously stated that from the beginning, the rate was too high.

In addition, the writer incorrectly concluded that payment by the ordinary salaried employee towards essential services such as rent leaves them pauperised.

Like all commentators who have been pontificating on the tax system, the writer fails to explain how a reduction in the VAT rate would improve the circumstances of the average wage earner.

It would be pointless to remind the letter writer that not only are rent, electricity, cooking gas, bread and flour zero rated, but so are more than 100 items commonly referred to as the ‘basket of goods’ that are usually consumed by the average Guyanese. Therefore, these items will not benefit whatsoever from any reduction in VAT.

Many persons would recall that when the VAT was first introduced, the previous Consumption Tax rates were higher than the rate of VAT in some instances. However, when the VAT was applied to some of these items, the prices continued to be the same and even higher than the pre- VAT prices. Those who are familiar with the principle that applies to the VAT system would know that this ought not to be the case, since VAT, unlike the Consumption Tax, is not a cost to a business. A lack of proper knowledge of the system and the reluctance on the part of businesses to pass on the potential benefits of an effective VAT system would appear to have contributed to the unusual price hikes which are occurring. On the basis of past experiences, what guarantee would ordinary Guyanese consumers have to ensure that the real benefits of more purchasing power would be obtained from reduced costs?

By increasing the Income Tax threshold, the government has placed more purchasing power directly in the pockets of all Guyanese earning over $40,000 per month. This, as you are well aware, will lead to more (in excess $3B) disposable income being available to an estimated 21,000 employees.

For those earning under $40,000 per month, the threshold increase will not benefit them but neither would a VAT rate reduction, since 90% of their consumption pattern is in relation to items that are zero rated or exempt, such as rent, electricity, all locally grown fruits vegetables, all locally reared poultry and meat, all locally produced clothing, rice, flour, peas and most items that they consume on a daily basis including water which are in the ‘basket of goods.’

Editor, the Guyana Revenue Authority’s VAT enforcement officers currently find it difficult to police the system against unscrupulous businesses which continue to offer not to charge the VAT in exchange for not issuing their customers with a receipt. These businesses are not only committing an illegal act but with the cooperation of their unsuspecting customers also evade their Income Tax obligations by under-disclosing their sales.

With such letters serving to politicise the VAT for no other reason than to oppose government policy, the resulting difficulties faced by my officers to uncover such schemes cannot be underestimated.

It is my fervent hope that persons who have a craving to sensation lise matters should first seek to educate themselves on the issues, as in the final analysis, it is the very people whose cause they appear to champion who turn out to be the losers at the expense of the businesses which are rubbing their hands in glee, no doubt from counting the illegal gains that they are able to garner.

Yours faithfully,
Khurshid Sattaur
Guyana Revenue

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