Minister of Finance Winston Jordan yesterday said there is no link between the application of the Value Added Tax (VAT) to private school fees and the non-compliance of several of these schools with the tax laws.
“I do not want a link seen between the imposition of the 14% on private tuition and the recalcitrance of schools, as it relates to paying or filing the income tax. The context within which the application of VAT should be recognized is a broadening of the tax base and reduction of the tax rate. I was unaware of the tax status of the schools when we implemented this,” Jordan told reporters at a press conference at his office yesterday.
On Wednesday, President David Granger himself appeared to draw a link between the two issues. Answering a question on the 14% VAT, he said “As it is now, the tax stays and as I said earlier there are grounds for ensuring that there is better compliance by all private operators with the GRA’s (Guyana Revenue Authority’s) regulations. Right now we have a high level of non-compliance by some private entities”.
Yesterday, Jordan explained that in broadening the tax base and reducing the rate from 16% to 14%, nothing was sacred. Government, he said, chose to apply VAT to private education in anticipation of some $350M in revenue from an industry whose top eight earners declare in excess of $2 billion annual earnings from tuition fees. To repeal the application of VAT to this service will therefore see government losing this budgeted revenue and severely affect government’s economic programme. “Either we upturn our economic programme, which will have consequences, or do what is required so we can all co-exist,” Jordan said, while noting that government is already set to borrow $38B to fund its programme for the year.
In the face of widespread criticism and a petition for the measure to be repealed receiving more than 14,000 signatures, Jordan implored the public to give this and other taxes a chance “to crystallize” before they object.
He urged citizens to hold the government accountable on its spending and hinted at a possible repeal in next year’s budget after the country has seen how it works.
Contrary to public statements, VAT is not being applied to education or education supplies, Jordan maintained, while noting that only tuition fees paid to private schools are subject to VAT.
He also stressed that only those private schools which earn $15 million or more annually and are registered for VAT will be expected to charge the 14% on tuition fees.
He further noted that to the extent that the VAT will affect poor parents using private education, they and the school could work out “creative ways” to share the “burden.”
According to Jordan, it is possible for private schools to absorb the VAT without passing the cost on to parents. This absorption would be tax deductible.
“Whatever portion the school takes up can be tax deductible. They can comfortably absorb it and they don’t lose, it is tax deductible,” he repeatedly stressed.
Demand letters for non-compliant schools
Meanwhile both Jordan and Commissioner-General of the GRA Godfrey Statia have said that several private schools that have been found to be non-compliant will be receiving demand letters asking for financial documentation from the current fiscal year and seven years prior.
The minister noted that there are only 54 private schools which are registered with the GRA and this represents 57% of those operating in Guyana. He revealed that of that number, only 26% are registered for and are already applying VAT for some services and sale of zero-rated items.
In 2016, these schools accessed $150 million in VAT refunds under the previous schedule which zero-rated education services.
According to the minister these taxes had already been charged to the users of the services yet these refunds were not passed on to the students in reduced fees. This is one way in which private schools are being accused of taking advantage of the previous tax regime.
According to Jordan, 10% of private schools registered with GRA are registered as non-profit organizations, while 14% are registered as profit making. The schools which make up the 10% have submitted “no accounts…to GRA though it was an original requirement to be given not-for-profit status.”
Other schools have been failing to comply with tax laws by not deducting P.A.Y.E from their employees or submitting employer’s returns with teachers being treated as contract employees responsible for their own P.A.Y.E and NIS submissions.
“There is also a high level of non-compliance in the timely submission of the required income, property and corporation return and the payment of taxes of these institutions…. [Additionally] there are instances of under declaration of income and inflated expenditure and in some instances payments are made to individual other than the institution to facilitate these under declarations,” Jordan said.