Manufacturers, FPA call for removal of VAT on forest products

-say sector faces decline, job losses

The manufacturing and forestry associations are calling on the government to rescind the 14% VAT on forest products which they say will cause a decline in the already “ailing” industry.

In an advertisement in yesterday’s Sunday Stabroek, the Guyana Manufacturing and Services Association (GMSA) and the Forest Products Association of Guyana (FPA) called on all stakeholders in the industry to sign a petition to have the Value Added Tax  (VAT) removed.

The statement pointed out that forest products such as logs, shingles, staves, lumber (rough and dressed), piles, poles, posts, spars, veneer, plywood, charcoal, firewood, wattles and manicole palm will all attract VAT.

The statement said that the sector supports approximately 17% of the population through direct and indirect employment and experienced its lowest production last year when compared to the last 17 years.

It said that the imposition of a broadened VAT base on forest products could not have been “more untimely for the sector.”

The statement added that the imposition of VAT has resulted in the cost of its products increasing, which ultimately gives imported substitute products a stronger advantage and also could result in the loss of jobs and businesses closing.

These substitute products, the statement said, include pine lumber, plywood, doors, plastic panels, medium-density fibre boards and other flat panels.

“Please note that the forest products are considered the greenest products when compared to any other substitute products available on the market and is a positive contributor to the Green Development Strategy that the Government is currently promoting,” the statement added.

It highlighted that the addition of VAT on the products will affect loggers, workers, building contractors, homeowners, furniture manufacturers, saw millers, crematoriums, lumberyard operators, shop-owners, logging-dependent communities, plywood manufacturers, hardware retailers and “even miners that depend on logging roads to access their mining operations among several other stakeholders.”

When contacted yesterday, an official from the GMSA, who preferred not to be named, emphasised that the 14% VAT would put the “already ailing” sector at a major disadvantage, especially when the local products are compared to the imported ones.

“We are already at a price competition level with imported products and now our products have been marked up by 14% which means you have created an upturn with the competition,” the official said.

Cash flow

“There will be job losses. You will have less investment and for those who stay in business their cash flow will be significantly impacted by VAT because even if you assume that you have an efficient GRA (Guyana Revenue Authority) and they will reimburse you the VAT, it will still take several months for that to happen,” the official explained.

“If a primary producer [sawmill] buys logs from a concessionaire he will charge 14% VAT on the logs so that sawmill will have to carry that 14% at best for three months so that’s cash flow tie up. So when that sawmill provides lumber and supplies to the furniture manufacturer they have to pay VAT, which they will claim back, but will take more than three months,” he said, while noting that just to produce one piece of furniture or value-added products there are various stages of VAT implications and “cash flow tie ups”.

When summed up, he said, the industry could see an estimated figure of some US$900,000 per month and US$11M annually being tied up because of the VAT which would usually go back into reinvestment, marketing, improving the quality of the industry or even into producing more raw materials for businesses.

Referencing a letter that was sent to the Ministry of Finance on March 8 this year, the official noted that Minister of Finance, Winston Jordan in his 2017 budget speech had alluded to the fact that there was a 33% decline in the sector and that the government would be exploring options in offering assistance. The official lamented that the imposition of VAT will worsen the situation.

“Most companies are marginally surviving and operating below capacity. For example, sawn lumber production from communities is down about 40% and this is normally the cheapest source of sawn lumber which sells at about 2/3 the price of mill cut,” he noted, while reiterating that the imposition of VAT on forest products affects the entire chain of supply from the forest producers straight through to the primary processing facilities and tertiary producers such as furniture manufacturers and the construction industry.

As such, he said, from a holistic point of view, the imposition of VAT on forest products would undermine the government’s policy of encouraging value-adding services and associated job creation, which was stated in the National Forest Policy and National Forest Plan.

He said that they have noted the government’s announcement that the Core Homes project will promote and prioritise the use of local wood products, however, while they welcome the announcement, it cannot be achieved with the imposition of VAT since it creates an uneven playing field with  imported products.

Additionally, the VAT would incentivise log exportation given that log exporters would feel no cash-flow impact even at a 17-20% export levy on logs.

“The forest sector is the only natural resources sector that has added value to more than 60% of raw resources while providing sustenance for over 17% of the total population through direct and indirect employment opportunities.

This includes the livelihood of over three thousand members associated with community forestry concessions,” the official noted, while stating that they have not received any response from the government to their complaint over the 14% VAT.

Anyone interested in signing the petition can visit the GMSA offices at 157 Waterloo Street, Cummingsburg. The petition is also at sawmills, lumberyards, community shops and gas stations.

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