President David Granger, as we have noted in these columns before, appears to prefer to give his ministers free reign to fully manage their own ministries, and he himself has said on occasion that he does not “micro-manage”, with reference to the affairs at City Hall and also with respect to the operations of the Guyana Police Force.
Recently, certain online reports said that the President was set to announce the removal of VAT from private school fees, but when the President later emerged to field questions from the press on the matter, he appeared to have been convinced by Minister Jordan that VAT should remain on private school fees. This was following a recent reconsideration of the matter.
Declining to speak too extensively on the issue, President Granger spoke about the fact that out of 57 private schools only 8 were “tax compliant,” and stated further that “…There are very strong arguments to maintain the tax. I said Cabinet examined it and I will urge the Minister of Finance to make a public statement so that the issues are better understood.”
It doesn’t seem so long ago that the President was exhorting his ministers, in December 2015, to listen to the people and to work in their interest, saying, as reported in the Guyana Chronicle, “We have to meet them; we have to find out what their needs are, particularly now at this time of year when, a month from now, we will present our second Budget. That Budget has to be reflective of the needs of our people for development. That can only be truly reflective if there is a process of consultation with the people…”
The minister in question, Mr Winston Jordan, has indeed heard from the people in this matter; there is an ongoing petition by affected schools which has exceeded 14,000 signatures. Unfortunately, however, he has seemingly doubled down on his decision to implement the VAT on private school fees and has been able to convince the President that to remove the tax would have adverse implications.
He has also hastened to rebut any claims of an apparent correlation between the imposition of the VAT and the non-compliant taxation status of the majority of private schools saying, “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.”
Despite seeking to address and debunk this obviously flawed correlation between the non-compliant status of the schools and the VAT imposition, it is the government alone that has repeatedly raised the issue of non-compliance, while attempting to speak to the core issue of VAT on private school fees and the concerns raised by stakeholders.
Such a correlation would be flawed because VAT on private school fees is a tax on the students and not on the schools, so Minister Jordan was obligated to correct this misconception, which was of the government’s own making. It would have been a case of Peter being made to pay for Paul’s recalcitrance.
In his exposition on the cabinet’s decision to not remove the VAT, the Minister revealed that 8 of the 57 private schools have a combined annual income of $2 billion, and the VAT yield is expected to be $350 million yearly. This, he said, is a key revenue source to fund government spending in the $250 billion 2017 Budget which has a relatively sizeable deficit of $38 billion. The $2 billion figure is simply a red herring in terms of his argument, of course.
That this budget deficit is a real concern is without question, and Minister Jordan in his Budget 2017 presentation had spoken of plans to institute prudent financial management. With a sluggish economy, even budgeted income might suffer shortfalls, exacerbating the fiscal deficit. In the current circumstances, the Minister will indeed be hard pressed to willingly forego $350 million of reasonably certain income given that the government has seemingly already factored in price insensitivity to private education spending by parents.
On the other hand, the private schools have warned that they may suffer a decline in the student population as parents of moderate means may be forced to discontinue paid schooling for their children. If this does occur, it may translate into a decline in earnings for the affected schools and, by extension, a decline in the expected VAT income flowing to the government.
This is probably a risk that any cash-strapped government will be quite prepared to take. Minister Jordan has repeated his suggestion that the schools can “absorb” the VAT payment without passing it on to the students. But this suggestion should not come from the government itself at all. The government in broadening its tax base has instituted a VAT on private school fees. This is a tax payable by the students/parents and not by the school so the government must have already considered the pros and cons of the tax imposition on those required to pay it. There should be no fudging of this issue.
It seems hardly proper to tax one group and then gratuitously suggest to another group that they absorb the payments in their own best interest.
The schools affected have vowed to increase the pressure on the government for the removal of the tax on the students’ fees and have talked about taking protest action. Certainly one would have hoped that the Minister by now would have found a less damaging way to fill the gap in his budget than by taxing education, of all things.