Despite arguments against from the opposition in the National Assembly on Thursday night, the Corporation Tax (Amend-ment) Bill 2016 was passed.
Finance Minister Winston Jordan explained that the Bill seeks to achieve three objectives as set out in this year’s budget. The first one, he said, is to reduce the corporation tax rate from 30 percent to 27.5 percent for manufacturing and non-commercial companies.
The second objective of the Bill is to prescribe the minimum tax rate of two percent of the turnover of a commercial company or 40 percent of taxable income, whichever is lower.
Thirdly, the Bill introduces a dual tax rate for companies carrying out both commercial and non-commercial activities.
He explained that the non-commercial part of the business will benefit from the lower corporate tax rate of 27.5 percent but will continue to pay the commercial tax rate of 40 percent for their commercial operations.
Jordan said too that the proposed amendment of the tax act seeks to bring relief to those companies that are engaged in both commercial and non-commercial activities.
He added that it allows for two business streams, where companies that have 75 percent of their income generated from trading goods, would have a fixed rate of 40 percent.
“Mr. Speaker, it is interesting to note that the last time that corporation tax on manufacturing was reduced was in the year 2012… from 35 percent to 30 percent…,” he said.
When he presented the budget in December, Jordan had said that the reduction of the corporation tax and the introduction of the dual rate would see a loss of $752 million in taxes.
In Parliament on Thursday he said that he saw the tax rate changes as “a way of giving back an incentive to the manufacturing sector. It’s a way of improving their cash flow so that they could engage in retooling and developmental activities to help them to become more competitive and allow them to do more exports and get into more manufacturing…”The reduction of the corporate tax would also favourably compare to the present income tax rate of 28 percent. This, according to Jordan, would encourage more people to go into manufacturing instead of becoming sole traders.
In his arguments, People’s Progressive Party/ Civic (PPP/C) Member of Parliament (MP) Irfaan Ali said that on the surface the amendments looked very simple and non-contentious. However, he said, Jordan alluded to a very important fact that the amendments have generated public criticism and commentary in relation to the net effect of the measures.
According to him, “When we examine the net effect of what is proposed,” what the minister hopes would be achieved as a result of the amendment, will not be realised. He commended the minister for recognising that the manufacturing sector needs a lot of support from government if it is to grow and expand. Pointing to the cost of energy and the operational cost for this sector, he said they have the solution for the cost for energy in hydropower.
“We have a project that is alive… that is critical if we are to reduce costs for the manufacturing sector and become competitive in the global arena,” Ali said, referring to the Amaila Falls Hydropower Project. He urged the government to realise electricity via the Amaila Falls so that the manufacturing sector can blossom and grow.
Ali argued too that the overall net effect of the tax measures brings no benefit to the manufacturing sector or the ordinary Guyanese.
Referring to the minister’s comments that the measure would stimulate the manufacturing sector, he argued that electricity charges over $10,000 per month would now attract VAT. The projection for oil prices, Ali said, does not show that there is a lowering, while the increased prices at the gas stations would not assist the manufacturing sector this year. He said Jordan did not announce an adjustment in the tax rate to assist the manufacturing sector to cushion the effects of the rising fuel prices. Instead, he said, “the rise is passed on to the consumer…,” and argued that “the manufacturing sector would be far worse off after the 2017 budget.”
He also noted that the additional charge of 14 percent VAT on water bills over $1,500 per month would affect the same number of companies.
Juan Edghill, PPP/C MP, said that with the introduction of such a Bill, he had hoped for a more definitive position on what can really catapult the manufacturing sector and the development of industries. He said, too, that hydropower is the key to help the “green economy and seeing things move in a green manner” and he questioned why the government’s programme was limited to wind and solar energy.