Government will be delivering on a promise to reduce the 16% Value-Added Tax (VAT) but will also be applying the tax to monthly electricity and water bills exceeding $10,000 and $1,500, respectively.
During his presentation of the APNU+AFC administration’s proposed 2017 national budget to the National Assembly yesterday, Finance Minister Winston Jordan announced that VAT would be reduced to 14%.
It was one of several changes to the VAT regime that Jordan said were in keeping with the coalition government’s manifesto promise as well as several recommendations of the Tax Reform Committee and a Caribbean Regional Technical Assistance Centre (CARTAC) study.
APNU+AFC, in its elections manifesto, had promised a reduction in VAT within its first 100 days in office and had faced criticism for not delivering after it won the May, 2015 national polls. It faced further criticism after it was made known that the Tax Reform Committee had proposed in January that the tax be lowered from 16% to 14% and the administration appeared hesitant to act.
President David Granger in July said the elections promise was “imprudent,” while Jordan himself had said in May that government had sought guidance from the International Monetary Fund (IMF) to ensure that the right decision was being made.
The 16% VAT, which has yielded significant revenue since its introduction under the then Bharrat Jagdeo-led PPP/C administration on January 1, 2007, has been long criticised for the burden it has placed on the citizenry and, in particular, the poor. Critics, including members of the current government, have long argued the 16% rate was too high, but it had been defended by the PPP/C administrations.
Meanwhile, accompanying the announcement yesterday of the planned VAT reduction were Jordan’s proposals to introduce VAT on electricity and water consumption, which were met by audible groans.
He said the 14% VAT would be applied on electricity consumption in excess of $10,000 per month. “While VAT will not be applied to consumption up to $10,000, it will be applied to the full amount once consumption exceeds $10,000,” he explained.
Similarly, he said 14% VAT would be applied on water consumption in excess of $1,500 per month.
Jordan also announced that he proposed to increase the VAT threshold from $10 million to $15 million. “It was found that a significant number of persons were unable to maintain proper records to meet the minimum threshold requirement for VAT registration. As such, this measure will allow the GRA to concentrate on the cohort that makes the bulk of VAT payments, since there will be a smaller tax base and consequently less VAT registrants to administer,” he said. Currently, a business must be registered with the VAT Department and display the VAT certificate before charging VAT. It is mandatory where the taxable activity equals or exceeds the threshold of $10 million at the end of 12 months, or where the taxable activity exceeds the threshold in less than 12 months.
Exempt and Zero-rated items
Jordan also announced that he proposes to expand the list of exempt items and eliminate all zero-rated items, with the exception of those pertaining to exports and manufacturing inputs.
The full list of exempt and zero-rated items included in the appendix to the budget speech details over 70 exempted items and a list of 16 zero-rated items.
On the list of exempted items are a number of essential food items, including baby formula and cereal, various peas and beans, bread in all its forms, cheddar cheese, cassareep, cassava bread, milk, oil, fresh fruits and vegetables, fresh, chilled or frozen pork, beef, shrimp, prawns, mutton, fresh chilled or frozen fish, salted fish but not including canned products (locally produced), margarine, flour, sugar rice, uncooked bird eggs, baking powder and unprocessed wheat. The list also includes essential consumer items such as sanitary napkins/panty liners, soap power, bleach, mosquito nets, kerosene stoves and matches. Thirty educational materials and services will also be exempted from VAT and these include text books, chalk, a wide variety of stationery, religious books, lunch kits/lunch packs/lunch bags and dictionaries.
A wide range of agricultural products including vegetable seeds, machinery, fishing equipment and paddy, crutches, glucometers and needles and glucose blood strips made for use with such machines, computers, laptops and notebooks for personal use as well as funeral services, are all on the exempted list. So are imported motor vehicles that are at least 4 years and older than the date of manufacture, all-terrain vehicles for use in the mining industry and by Toshaos from approved Amerindian communities as approved by the Commissioner-General, machinery or equipment for generating electricity from renewable sources example solar (lamps, panels, generators, cookers, water heaters), power inverters, water turbines, wind turbines and energy efficient lighting, bicycles, fertilizers, goods imported for non-commercial purposes and contained in passenger’s baggage or imported in gift parcels sent by air or sea or post of which the Cost, insurance and freight (CIF) value does not exceed the Guyana dollar equivalent of US$200 and items approved by the Commissioner General which excludes motor vehicles and all-terrain vehicles for charitable and non-governmental organization.
The list of zero-rated items include a supply of goods under a rental agreement, charter party or agreement for chartering where the goods are used exclusively in an export country, a supply of goods where the Commissioner General is satisfied that the goods have been exported from Guyana from the supplier, a supply of services directly in connection with land or any improvement thereto situated outside of Guyana and a number of exports of service and imports, including of raw materials to be used in production of goods and of packaging material to be used in the production of goods which will be subsequently exported.