Section 6 of the 2015 Budget Speech contains twenty-nine paragraphs covering 15Budget measures. Only some of these carry an estimated cost and a number of them have not inconsequential compensating savings. We now look at those measures and offer our comments.
- Amendment to the First Schedule of the Customs Act.
The fishing sector will benefit from exemption from Customs Duties on fishing boats and supplies used in fish/seafood and aquaculture. This exemption is expected to result in lost revenue of $100.5 million.
Toshaos in approved Amerindian Communities shall be exempt from Customs duties on motor vehicles and ATVs.
We are concerned that such measures are very susceptible to abuse and corruption. For example, the measures to target Toshaos will not necessarily help the entire community if the Toshaos engage in exploitative practices. A better option would be to grant any concessions to vehicle(s) owned by the community and used by the Toshaos for official business.
To overcome some of the dangers the Government should put in place objective measures to regulate the granting and oversight of the concessions.
- Amendment to the Excise Tax Regulations 2005
Exemption from Excise Tax on motor vehicles for eligible members of the Joint Services. Motor vehicles and ATVs for Toshaos and supply of motor vehicles under a contract between the Government of Guyana (GOG) and taxable persons will also benefit from the exemption.
It is not specified who would qualify as “eligible members” and this will need clarification. There needs to be a clear justification for concessions to any group.
- Amendment to the Income Tax Act Cap. 81:01
Substitution of the word “shrimp” with the word “prawns”. This amendment removes the export allowance on prawns and by implication allows it for shrimp.
This could become a definitional issue revolving around size. There is a view that this whole business of export allowance is Anti-World Trade Organisation, the reason for its abandonment by Trinidad & Tobago several years ago. We also wonder whether this was the only area warranting review given that the Schedule was last amended in 1997.
- Amendment to Value Added Tax Act 2005
The amendment to the Act will see an assortment of items now being zero rated. These items are as follows:
“Yogurt, cereals, fresh carrots, milo and ovaltine, nestum, mustard and
mayonnaise, locally-produced fruit, locally-made chow-mein, vinegar, locally-
made uncooked pasta, ketchup, chicken sausages in packets, locally produced
Chinese sauce, baking powder, liquid detergent, household cleaning agents, and
omputer printers for non-commercial use.”
Since the removal of VAT reduces the invoice price, only exploitative practices by traders, that is increasing selling price by 16%, would prevent any price reduction to the consumer. The Minister projects the loss of revenue from this measure to be $680 million.
It would be noted that this measure does not meet the commitment of an immediate phased reduction of the VAT rate and (emphasis ours) the removal of VAT from a food and other essential items. We are concerned about the tag ‘locally produced’ on any item given the decision last year by the Caribbean Court of Justice in respect of Community sourced products.
Careful drafting of the legislation is necessary to avoid problems in implementation.
- Tax exemption to small and Medium Scale Miners
Eligible gold miners will be exempted from the payment of custom duties on fuel, matting, ATVs, jack hammer drills, flex hoses, expanding metals, pumps, pump housing, impellers, shaft and engines.
This was a response to the pleas from the sector for relief and also a commitment in the One Hundred Day Action Plan. Like the relief to the fishing sector and the Toshaos, such concessions are subject to abuse, the avoidance of which would add significantly to the cost of regulating them. Still, it is hoped that this measure will provide enough of a fillip to ensure survival of the many the smaller operators.
It is our view however that concessions are not a permanent answer to volatility in commodity prices. Would the miners be prepared for the Government to reverse its position if the price for Gold recovers? Additionally, gold miners are suspected to be some of the largest tax evaders in the country and issues such as smuggling, illegal immigration and trafficking in persons carry a serious cost.
- Mortgage interest relief
The Minister announced that Mortgage Interest Relief will now be treated as a deductible item against chargeable income rather than a reduced interest cost for all eligible persons.
The impact is that fewer first time homeowners will now benefit from full relief on their interest, resulting in higher borrowing cost. Individuals who may have taken significant loans may experience difficulty and there may be a consequential effect on housing construction.
- Amendment to the Income Tax Act Cap 81:01
National Insurance contributions by employees will now be tax deductible. The cost is estimated at $1.3 billion annually.
This measure will result in a net increase in the disposable income of all workers. An employee with gross earnings of $180,000 will benefit $2,870 being the highest beneficiary in a gross salary scale from $45,000 to $250,000. This measure is effective from January 1, 2015 which means that adjustments will need to be made to avoid overpayments to and refunds by the Guyana Revenue Authority.
This measure along with the allowance for Mortgage Interest Relief is a step away from the flat allowance in place for more than twenty years.
- Reduction in the Berbice Bridge Toll
The Berbice Bridge Toll will be reduced from $2,200 to $1,900, a 13.6% decline for passenger cars and by 10% on all other vehicles. The reduction takes effect from September 1, 2015.
This measure is being financed by a Government subsidy and was described by the Minister as the first of a phased reduction.
- Old Age Pensions and public assistance
The Minister announced a $3,875 per month increase in Old Age Pensions, moving the amount from $13,125 to $17,000. At the same time, the monthly subsidy of $2,500 and $990 for GPL and GWI payments respectively available to all pensioners is being withdrawn. Public assistance increased by $600 compared to 2014 from $5,900 to $6,500.The increases will be effective from September 1, 2015.
The gross increase in the OAP represents an increase of 30% over 2014 if the GPL and GWI subsidies are ignored. However when the full extent of the measures is considered the real increase is 2.9% to those who currently benefit from both the electricity and water subsidies. We understand that less than one in three pensioners benefit from the subsidies so the number of persons who will benefit from the 30% increase is considerably greater than those who will receive the more modest increase.
With eligible persons numbering 42,397 pensioners, the monthly increase is likely to amount to $164.3 million.
- Salary increase
The Minister announced that the basic salary of public servants would be $50,000 from July 1, 2015. Using a minimum wage of $39,540 the Minister calculated an increase of 26.4% to earners in that group.
By some quirk of administration, only persons in the public service prior to 2014 were in receipt of the 2014 minimum wage of $42,703 per month. Those who joined later received the 2013 minimum wage. Accordingly, the annualised increase for persons in these two groups is 26.4% and 17.1% but since the increase only takes effect from July 1, the effective 2015 increase is 13.3% and 8.85%.
- Hourly Rates for Part-time Sweeper Cleaners
$312 or 54% increase in the hourly rate will be paid to the approximately 1,000 part-time cleaners.
This increase is likely to put pressure on the National Minimum wage of $212 per hour.
- Withdrawal of NIS Subsidy
The minister announced that the 1% subsidy on contributions to persons earning up to $50,000 per month is being withdrawn with effect from September 1, 2015.
When the measure was announced in 2013, the then Minister of Finance Dr. Ashni Singh estimated that it would cost the Government $215 million per annum. The abolition would therefore amount to a savings of a similar sum. In making the announcement Minister Jordan referred to the measure as being introduced in 2003 when in fact it was 2013.
Since the tax benefits of deducting the NIS contributions would only affect those persons earning more than the tax threshold of $50,000, the withdrawal of the subsidy will be a cost to those earning below $50,000.
The private sector may be forced to compensate employees for this loss if they continue to pay wages below those in the public sector. Sixty percent of the withdrawn subsidy would be borne by employers.
- Trade Unions
Trade unions will now benefit from an allocation of $11 million to assist with in-country training programmes designed to enhance the performance of public servants.
This measure removes a sore point of contention between the current and previous Administrations.
- Uniform Assistance Programme
Uniform allowance voucher has increased by $500 or 25% from $1,500 in 2014. The increase is projected to cost $337 million and will benefit approximately 167,000 students.
In 2014 the PPP/C Administration granted each child in a public nursery, primary or secondary school a sum of $10,000 and estimated a cost of $2 billion. That facility is discontinued and constitutes a savings..
- Georgetown Restoration Programme
$300 million has been earmarked for the Restoration of Georgetown Programme, to roll out an intensive clean-up campaign and to assist in the enforcement of laws on littering. In 2014 a sum of $500 million was allocated to clean up Georgetown.
There is no City Council and it is not clear how the programme will be executed. This subsidy to the city while necessary should be tied to specific achievement targets and accountability so that the government will receive value for money. The significant clean up exercise which came with the swearing in of the new Government seems to have cooled.
- Community Infrastructure Improvement Programme
$542.7 million has been provided to fund a remodelled Community Infrastructure Improvement Programme (CIIP) with an aim of enhancing aesthetics and infrastructure of communities.
Properly managed this could benefit us all while creating much needed employment for a relatively small segment of the significant unemployed population.
- Sustainable Livelihood and Entrepreneurial Development (SLED)
The minister announced $115 million to promote micro and small scale enterprises to create opportunities for the disadvantaged and the youth.
If this allocation is spent wisely it could have long lasting benefits to many communities struggling with high levels of unemployment.
The mechanism for awarding the payment will have to be carefully worked out to ensure it is properly targeted and to ensure accountability and transparency.
- Linden Enterprise Network
The re-introduction of the Linden Enterprise Network (LEN) has seen the Minister announcing a $155 million for SME financing to re-energise business activity in Linden and its environs.
While this is much needed, it will take a lot more investment to bring sustained economic revival to the area. Cynics could see this as repayment to an area that is considered a traditional stronghold of one half of the coalition.
Overall comments
It is not unusual that Budget measures have winners and losers, those who gain comparatively more and those who benefit comparatively less. This Budget is no different.
Ram & McRae believes that Minister Jordan has made a good start in attempting to address some of the pressing needs of the less fortunate Guyanese. For the measures for which costing is provided the cost is approximately $4,195 million. We are unable to determine and pronounce on the value of the savings but given the state of the public finances the measures are welcome. It would be a pleasant surprise if the measures result in a net gain to the Treasury and benefit the target persons and groups.
