Business and taxation

At the Guyana Manufacturing and Services Association (GMSA) dinner held last month, Minister of Finance Winston Jordan, in his delivery to those assembled, more than hinted at an inertia gripping the private sector in terms of innovation when he charged them with, “Don’t wait for the government to lead the way; you, the private sector, are the proverbial engine of growth. You should now seize the initiative to be the engine of green growth.”

All business activity is usually driven by a profit motive. Indeed, it is impossible for a business activity to be sustainable if it is not turning a profit. Increased profits in business are usually attained through initiating growth in the business. All these are generally accepted facts, so that whenever a government comes along suggesting that the private sector is not quite living up to its responsibility or reputation as the “engine of growth,” and is instead “waiting for the government to lead the way,” it can seem more than a little disingenuous on the government’s part.

It is not unusual for successive governments in Guyana to pay lip service to an acceptance of the role of the private sector as the driver of economic growth and development in the country, while at the same time implementing unfavourable economic policies which actually cause or contribute to the stagnation of growth in the private sector.

In recognition of the supporting role of government in the economic development structure, Jordan followed up with, “While the government is expected to continue to create the enabling conditions for a green economy and lead by example, the GMSA needs to start acquainting itself with the [green state development strategy] and the many opportunities afforded manufacturers. In this vision for a clean, green, sustainable economy in Guyana, the private sector has a responsibility to ensure that this transition takes place by introducing fundamental changes in how they conduct business.”

In the second statement quoted, the Minister acknowledged the government’s responsibility for creating the “enabling conditions” for business in what it calls a “green economy,” but does not state definitively that these conditions have been already created. The Minister did make mention of government’s ‘Framework of the Guyana Green State Development Strategy and Financing Mechanisms’ document, but this was only reported as “finalised” on April 19th of this year by the Government Information News Agency (GINA). There does not seem to have been enough time for government ministers and officials to familiarize themselves with its content and effect its implementation, much less the wider community, including the private sector.

A perusal of the document, also simply called the Green State Development Strategy (GSDS), shows that one of the mainstays on which it is conceptualised is ‘Financing and Resource Mobilisation.’ The Government of Guyana in its two years at the helm has very openly gone the route of strengthening its tax collection systems and widening the tax net on all classes of individuals and businesses. It has significantly overhauled the VAT mechanism, reducing the rate of VAT while broadening its scope and reach (in the process also changing the ‘zero rated’ status of some items to ‘exempt’ status), all aimed at increasing its revenue base.

But ironically, Jordan has also been reported as saying that current tax collection, including VAT and income tax, has declined compared to the same period last year by a total of $3.0 billion. However, this shortfall has been balanced by the sum of $4.3 billion in arrears tax payments from previously non-compliant sectors.

The administration now faces an interesting dilemma. In its efforts to streamline revenue collection and increase the number of tax-compliant businesses and individuals, it has at the same time brought about a reduction in its collection of current taxes. If this has come about due to a contraction in business because of some of its own measures designed to increase its revenue stream, then it only has itself to blame.

The old adage ‘the stricter the government, the wiser the population’ still rings true in every economy, not just ours. The reality is that it is the poorer mass of the population that pays all the taxes, as all economic activity is based on the participation of the masses.

This fact is acknowledged in the concept of ‘consumer confidence’ as an economic indicator of the individual’s confidence in the state of the economy and in their own financial ability vis-à-vis their expectations regarding the direction in which they believe the economy is headed.

In 2017 in particular the Guyana government tested the mood of the people, and some might argue influenced it negatively, when it announced sweeping changes to the VAT regime that saw items and services not previously taxed caught up in a widened tax net. The several prolonged public protests that followed should be considered by the administration to be partially responsible for some degree of unplanned economic fallout.

The other significant government-based taxation related activity occurred when the City of George-town attempted to institute a system of paid parking that was as onerous as it was poorly conceptualized, and hastily and clumsily implemented. It has been argued very effectively that parking meters are really a kind of tax on businesses, as business contracts around the presence of parking meters and expand in their absence.

The reaction from the general public to the imposition of parking meters had an immediate and very visible economic effect as once bustling thoroughfares became empty streets and the business sections of Georgetown quickly took on the appearance of a ghost town.

Rather than quickly stepping in to reverse the effects of these two taxation-driven initiatives, the government bumbled and fumbled its way around, both possibly contributing to the economic state of affairs that has materialised in the form of shortfalls in current revenue collection.

\This administration will do well to focus on creating the enabling environment for consumer confidence to bloom and businesses to prosper, carefully widening the tax net without increasing the tax burden on economically vulnerable individuals and small entrepreneurs.

Expanding taxation at the risk of contracting business activity is neither a sustainable nor sensible strategy, and the private sector cannot be blamed when this inevitably backfires.

Comments  

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