Dear Editor,
In reference to an April 6 letter in the Kaieteur News, it is not my desire to become embroiled in any politically charged discussions with any of our taxpayers, lest because I do not share their point of view they make the unpardonable mistake of accusing me, as Ms Lurlene Nestor has done, of being partisan and worse, of suffering memory loss.
It is for this reason that I will not prolong what was said on the recent campaign trail.
I am aware that a Tax Review Commission is working to review the tax system with the mandate to recommend rate changes if warranted. I dare say that this Commission’s mandate does not stop at ensuring revenue neutrality as was the case when an external independent specialist from Barbados was tasked by the then government to perform a sensitivity study. The study had overwhelming support at the time parliamentarians voted for the introduction of the Valued Added Tax (VAT) on January 1, 2007, with the current levels of exemptions and the applicable rate of 16%.
I do wish, however, that I could have the luxury of those occasional moments of memory loss that Ms Nestor refers to, so that I can blank from my mind all those public educational programmes which were a regular feature of the VAT implementation process. In this regard, I would avoid reliving the fears that the Nestors of this world want us to experience as a consequence of the negative publicity associated with the VAT.
This appears to be slowly creeping back into the public space and seems to have threatened the smooth introduction of VAT at the time.
Had those efforts to champion its introduction been affected by the large swell of negative views expressed by the likes of Ms Nestor, then the significant spending we have witnessed in all the social sectors, including the spending on roads and sea defences to improve the lives of Guyanese of all walks of life, would not have materialized.
Editor, I am proud of my achievement at the helm of the premier revenue collection agency of the state, and whilst much more needs to be done, all Guyanese should likewise take their hats off to the achievements of Guyanese home-grown administrators who have taken tax administration to a much higher level. We must acknowledge the many modernization initiatives that have occurred at the Guyana Revenue Authority (GRA) over a short period of time. The country has witnessed the most stupendous improvements that have ever occurred in revenue collection in the history of our country, just from improving the quality of services being rendered to our taxpayers and having a much more efficient and responsive tax system. The benefits which Guyanese have been reaping, both in revenue collection and economic growth over the past five years in particular, are testimony to a staggering 50% increase in revenues from all the taxes that fall under the purview of the agency. This is in-spite of an increase in the threshold by 100% since 2006, a reduction in the rates of corporate taxes in 2010 and a reduction in the rates of duty on certain imports as a result of the implementation of the Economic Partnership Agreement (EPA).
I have a public responsibility in the discharge of my duty as Head of the revenue agency of the land to clear up misperceptions that, if not arrested, can lead to imponderables in theadministration of taxes which could affect the revenues of the state in an adverse manner.
Let me, therefore, take this opportunity to reiterate and share with your wide readership some of the benefits of our VAT system. These benefits should be evident in any tax system:
1. The system provides an opportunity for Guyana to be consistent with the requirements of regional and international trade agreements. Many countries have implemented VAT: in fact, 126 countries have already implemented this tax.
2. VAT is a fairer system in which everyone contributes at the same rate and the VAT treatment is the same, regardless of the consumer. However, since various commodities that are generally consumed by the poorer classes of society can be subject to either zero rating or exemptions (in Guyana’s case, in excess of 100 different items, from locally produced building materials, to locally produced poultry and fish to electricity and even cooking gas and educational material and health care are zero rated), the “high” rate of the VAT is not passed on to these categories of goods and therefore by extension, the consumers of these items would not benefit from any lowering of the VAT rate. The fact of the matter is that there has been no increase in the rate of VAT since its introduction, even though most countries around the world have a higher rate and have had to resort to increasing the applicable rates.
3. The VAT was recommended by many tax reform studies as part of a general tax reform programme. As such, the introduction of the VAT heralded a good opportunity to
revamp the Inland Revenue and Customs administrations. The VAT therefore, was not an additional tax but a part of a tax reform. Many reforms have since occurred at the revenue agency, but, unfortunately, the significant revenue gains have been attributed to the introduction of the VAT rather than from the removal of redundant taxes. In Guyana’s case, in excess of 6 taxes which were considered obsolete were abolished inclusive of the very inefficient consumption tax; these were all replaced with the VAT and excise tax. Administrative reforms also included computerized systems, increases in capacity, institutional strengthening and organisational changes, among others. Guyana Revenue Authority benefited from new software, the Total Revenue
Integrated Processing System (TRIPS) and adopted a new organisational structure through funding provided by international funding agencies.
4. VAT is to provide long-term economic improvements. Since 2007, with major tax reforms occurring after the introduction of the VAT, the GRA is now poised to collect a massive $116.4B in revenues without the introduction of any new taxes. As a matter of fact, while the income tax rate has remained the same at 33⅓%, the threshold, which stood at $25,000 per month in 2006 is now $50,000 per month and the corporate tax rates were reduced from 45% to 40% for commercial companies and from 35% to 30% for manufacturing companies, as I alluded to earlier. The revenue collection which stood at $77.5B at the end of the first year, after the introduction of VAT, has seen a 50% overall increase since then.
5. In some jurisdictions, consumers pay a tax upon another tax for some goods and services. This makes the price of commodities very unstable since, unless these taxes have been properly applied, the prices of commodities can vary from one shipment to another and from different suppliers. VAT replaced the multi-rated consumption tax with a single-rated tax on domestic and imported goods and services and is one of the main reasons for the prices of commodities remaining relatively stable over the years.
Ironically, it is the prices of those zero-rated commodities such as cooking oil, eggs and poultry that appear to have been fluctuating.
6. Since VAT is a replacement tax for some indirect taxes, it has been costing government a lot less to manage the one tax, as opposed to a large number of small taxes.
7. VAT is a visible tax and consumers are now able to see the amount of tax they paid on the goods or services they purchase. Therefore, by extension, VAT is also more transparent.
I would like to request that Ms Nestor consider that the Government of St Lucia has recently announced that with effect from September 1, 2012 it will be introducing VAT.
St Lucia remains the only country in the Eastern Caribbean which has not introduced the VAT.
Yours faithfully,
Khurshid Sattaur
Commissioner-General
