GRA tells businesses to provide evidence VAT affecting export operations

Godfrey Statia

The Guyana Revenue Authority (GRA) is challenging members of the business community to prove that recent changes to the Value-Added Tax (VAT) regime are negatively affecting their export operations.

Speaking at a press conference held at his Camp Street office on Tuesday, Commissioner General Godfrey Statia repeatedly asked that businesses “give [him] the empirical evidence that VAT was indeed being (applied) on exports and that they were worse off than they were prior to the implementation to the changes in the VAT schedule.”

“All I am asking is if you are saying that you would be adversely affected, prove it to me, show me the facts…I would like to lay rest, that there is no VAT on exports. I am asking the PSC (Private Sector Commission) chairman to show me the facts,” he challenged.

He provided as an example of a successful challenge the case of the fishing industry where after detailed submissions from the stakeholders and an analysis by the GRA it was observed that the industry needed additional relief. This analysis resulted in equipment and spares for the industry being made VAT exempt.

Several major business groups on Monday voiced dissatisfaction over what they said was the decision by the Government to disallow exporters the right to reclaim VAT paid on inputs used to produce goods and services to be exported from Guyana.

In statement, the PSC of Guyana, the Guyana Manufacturing and Services Association, the Georgetown Chamber of Commerce and Industry Limited, the Guyana Rice Exporters and Millers Association (GREMA) and the Guyana Forest Products Association said that such refund claims were allowed since 2007 when the Value-Added Tax was introduced. They argue that the action by the present Government is affecting the competitiveness of the rice exporters.

Referencing Minister Winston Jordan’s response to concerns raised by the President of the Guyana Rice Exporters and Millers Association, the PSC statement said that Jordan appeared to have been “misled on the chronology of amendments he has made to the Value-Added Tax Act since 2017 and on the specific provisions of the Act.”

Jordan, according to the statement, had told GREMA that the export of rice is an exempt item, that exempted goods and services are not considered taxable goods and services, and that the aspects of the Value-Added Tax Act which provide for the zero-rating of exports do not apply.

“The GRA is conflating two amendments, neither of which supports the interpretation and advice offered by the GRA to the Minister. Most significantly, in the process, the GRA is causing the Minister to reverse an undertaking given to the National Assembly in January 2018 that none of these proposed amendments will negatively affect any individual or business.” they further argued.

However Statia argued on Tuesday that it was the businesses who did not understand the VAT act.

He said that from the implementation of VAT in 2007, only exempt goods exported from Guyana are unable to reclaim input VAT and not all exports as alluded to in the PSC release.

Further he argued that in order to ensure that local manufacturers of exempt products that were previously zero-rated whether for export or local supply were not unduly affected many of the products exempted were the first in the chain.

“Many products exempted were the first in the chain so they would not have attracted any value-added element, hence no significant input VAT to be reclaimed. These items would have accounted for a significant proportion of the cost of production,” he said.  A statement that the GRA issued at the press conference  cited lumber and lumber products, poultry and fish.

In addition, the GRA said that the following were zero-rated:

raw materials and packaging materials for taxable persons who export more than 50% of their products,

raw materials and packaging materials for the production of exempt goods

all bio-degradable containers used in the packaging of food and beverages

importation of equipment and spares to be used in the production of exempt goods in the fishing industry, which goods will be subsequently exported by a person who exports 50% of all its products.

Chronology

The Commissioner General further said that the Minister was not misled on the chronology of events nor was GRA conflating two amendments.

“This reference appears to be referring to section 17 and the repeal of section 18(2) of the VAT Act. The GRA wishes to inform the public that the amendments to Section 17 and 18 were done to clarify the law since it was an example of circular reasoning and was the cause for much confusion. Further, Section 18(2) was never utilized by the GRA from the inception of the implementation of VAT in 2007, as such this would have no impact on the industry,” Statia said.

Another argument posed by the business groups was that a fundamental premise of VAT as operated in every country which has introduced it, including Guyana, was expressed in two major recent reports on the country’s Tax system – the Duke University (2014) and the Caribbean Regional Technical Assistance Centre (CARTAC) (2016).   The Duke University Report, the PSC statement said, noted that “The typical IMF recommendation for a VAT is to only zero rate exports of goods and services, including the related transportation services”, while CARTAC noted that “Ideally, the zero rate should be restricted to only exports.”

In rebutting this argument, Statia, noted that no mention was made of the fact that many changes to the VAT Legislation resulted from these reports as well as the recommendations of the Tax Reform Committee.

“The amendments to the VAT Act are consistent with the recommendations expressed in the Duke University Study and the recent CARTAC’s Review and Assessment of VAT Administration in Guyana Report which was done in August 2016,” he said, adding that the CARTAC report also stated that Zero-rating of inputs breaks the VAT chain early and increases the incentive to underreport output VAT figures, such provisions cannot serve as a permanent form of industry support since industry is not supposed to bear VAT in a well-designed VAT, they increase the risk that dual-use goods will be used in personal consumption activities, they complicate compliance, obscure the economic operators’ understanding of the VAT, and invite disputes and non-compliance with respect to classifications of goods and decisions over what is taxable and what is zero-rated.

Following these recommendations the report concluded that the VAT is not an effective tool for industrial policy and subsidies, or to provide effective protection to domestic production, Statia added.

The GRA statement added that exporters also benefit from export allowances if exporting eligible products to eligible countries in accordance with Section 33C of the Income Tax Act. This says that where during a year of income a company registered in Guyana has made export sales, either directly or through any other person to any country of manufactured or processed product or any product of agriculture, in determining the chargeable profits of the company for that year of income, a deduction or export allowance shall be allowed to the extent specified in Part I of the Fifth Schedule.

The percentage of export profit deductible as export allowances ranges from 75% where the percentage of export sales to total sales exceeds 61% to 25% where the percentage of export sales to total sales is 10% – 21%, the GRA said.

In relation to VAT Refunds, the GRA said that  Section 35 of the VAT Act provides for refunds of input tax credit (VAT paid net of VAT charged) for the provision/supply of taxable goods and services. Further, Section 35(5) provides for monthly VAT refunds for the excess credits attributable to the zero-rated supplies. The GRA said that the supply of rice is an exempt supply and therefore not eligible for VAT refunds in accordance with Section 35 of the VAT Act.

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