New VAT regime to drive up prices, inflation rate ― PSC

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…pharmaceuticals to become more expensive

The new Value Added Tax (VAT) regime being introduced by the Government through the Finance Ministry for 2017, will drive up prices for goods and services locally and the punitive tax measures announced could very well see more and more legitimate businesses being forced underground.

PSC Chairman Eddie BoyerPSC Chairman Eddie Boyer

The Private Sector Commission (PSC) on Thursday met the local media to give its post-budget analysis and used the occasion to caution Government over its tinkering with the VAT rate.

It was explained that under the proposals submitted by the Finance Ministry, VAT will now be applied to a range of items including medical and education supplies but the re-categorising of zero rated and VAT exempted items will create problems and could also in fact drive up prices.

The officials explained that non-taxable items were not captured in the process but items that had attracted a zero rate to consumers still attracted VAT on many of its raw commodities.

It was explained for example, that while flour or bread might have been zero rated, many of its input commodities attracted VAT and under the current arrangement companies using such products would have been able to recover its expenses on the vatable inputs.

According to the PSC, now that the items have been placed into an exempt list, companies will not be able to recover any part of their investments and as such the total costs will have to be passed on to consumers.

It was pointed out that NAMILCO already projects losses in the vicinity of $200 million annually.
The PSC has since called on Government to come forward and offer some clarity on the matter since the Minister’s presentation has left more questions than answers.

Huge blow

It was pointed out too that under the list presented by the Minister of Finance, items required for school and other essential services such as visiting the doctor will now also be attracting VAT.

According to Chairperson of the PSC Committee on Economics and Financial Affairs, Ramesh Persaud , if Government is going to charge VAT on education then it is going to be a huge blow to the middle-class.

It was pointed out that essential drugs and medical supplies will now be attracting VAT. This means that a patient will not only have to pay VAT on their doctor’s visit at a private hospital but any prescriptions to be filled will become more expensive.

This obtains since drugs will also now be attracting a 14 per cent VAT, inherently driving up the costs to be paid by consumers.

According to Persaud, “it is a significant challenge,” even as he called on behalf of the PSC for Government to revisit is new VAT regime.

Persaud was of the view that should the new VAT regime as indicated by Government were to go ahead then it will inherently drive up prices and the inflation rate in the country.
The PSC briefly weighed in on the proposal by the Finance Minister to place VAT on electricity and water, saying that this too will serve as a disincentive to small businesses.

It was noted that while large manufacturing companies would be able to recover VAT paid on electricity and water, the same would not obtain for smaller businesses.

The PSC also used the opportunity to set the record straight on assertions being peddled that the vast majority of customers of the Guyana Power and Light will not be affected since 80 per cent fall below the vatable limit.

According to the PSC, while the bulk of the customers may fall into the smaller category of payment, the bulk of the actual payments come from the rest of the customers, specifically the small and large businesses.

Underground economy

The PSC also railed against several other proposals by Government with regard to the readjustments of other taxes, fees and penalties.

According to Persaud, punitive measures will not enhance the tax net but will in fact make it harder for persons in the informal sector to become formal and could in fact force more businesses into the underground economy. Persaud said some of the measures proposed by the Finance Minister are in fact impractical.

He pointed to the requirements for businesses large and small to maintain their books or face fines and jail time should they fail to comply with this requirement.

Persaud queried whether a hypothetical audit of businesses be conducted, what would happen to the stall holders and minibus operators who would have a difficult time maintaining accounting records.

He said what the new measure will mean is that if called upon to produce their books and a small business owner is unable to, then they are subject to a $200,000 fine along with six months imprisonment.According to Persaud, “we must have a conscience…we agree that every business must maintain records but what about small business vendors…are we going to ask them to hire accountants?”

Persaud maintained that large businesses will not be affected by the requirement to maintain records but it is the vendor, farmer and small business operators that will feel the brunt of the penalties. He suggested that the move could in fact force more businesses out of the formal economy, reminding of the Guyanese adage “stricter the government, wiser the population.”

Budget cuts

Another of the queries made of Government by the PSC is the new requirement for contractors to pay a two per cent withholding tax as an advance tax.

The PSC made it clear that the Minster was unclear as to what categories of contractors that would be required to make the payments. It was pointed out that some contractors are already made to pay an advance tax and the addition of a withholding tax will just add to the overhead expense.

The PSC also expressed reservations over the decision to require Budget agencies to pay VAT. The PSC also used the occasion to rail against the proposed increase in late fees for filing returns with GRA and questions whether GRA will operate reciprocally, asking whether the tax authority will in fact, pay a taxpayer the applicable 18 per cent fee should it be late in making its returns. (Guyana Times)

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