Consumers have not benefited from the reduction in VAT

Dear Editor,

With the reduction of the Value Added Tax (VAT) from 16 per cent to 14 per cent, has the consumer benefited? A survey done on products/ items sold on the market has revealed that the expectation that the price of the product would decrease by 2 per cent has really not materialized.

Consumers continue to pay the same price or even higher, but hardly has there been any decrease. What indeed has happened is as follows: an item costs $500, hence VAT at 16 per cent will be $500 + VAT $80 – $580. A reduction in VAT to 14 per cent will be $500 + VAT $70 – $570. However, the price either remains at $580 or it increases beyond $580. In order to maintain the price of $580, the cost of the item is increased from $500 to $509. At $509, and VAT at 14 per cent, the result is a price of $580. The Guyana Revenue Authority (GRA) now receives $71 by the reduction of 2 per cent. The consumer does not benefit from a $10 reduction since the base price of the item increases, so that the selling price remains at $580. Wearing my economics hat, the consumer is now on a lower indifference curve. Is this a better life for one and all?

The emphasis of this letter is to highlight the fact that in decreasing VAT, the government’s revenue will be less, but the consumer will continue to pay the same price or even more. So, the talk that VAT should be reduced to 12 per cent will certainly not help the consumer. What in effect should have happened when this tax was introduced, was that instead of starting at a high of 16 per cent, it should have been 8 to 10 per cent, and as the need arose, possible increases subsequently. A lower VAT at its inception would have resulted in fewer tax evaders and more revenue for the GRA.

I will close by asking my readers to check to see if the Guyana Chronicle and Sunday Chronicle were reduced from $80 and $140 respectively, as a result of a decrease in VAT by 2 per cent.

Yours faithfully,
John Seeram

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