Home latest news Govt hikes excise tax on neutral spirits from 40% to 65% –...
A move by the Guyana Revenue Authority (GRA) to amend the excise tax on alcohol, essentially increasing the tax levied based on the strength of the alcohol, has now delivered a crippling blow to local manufacturers that use alcohol in its purest concentration.
Many local manufacturing companies had complained last year about having to pay an alarmingly high excise tax of 40 per cent on alcohols that they would purchase locally from Demerara Distillers Limited (DDL).
To that end, they requested government’s intervention to alleviate the burden plaguing the local manufacturing sector. Instead of getting relief from paying the 40 per cent in excise tax, manufactures now have to pay an incredulous 65 per cent for the neutral spirits they buy locally to use in the production of their goods and services.
The alcohol purchased by manufacturers is referred to as extra-neutral alcohol or neutral spirits and is measured in Litres of Pure Alcohol (LPA). At the purchase strength of 96 per cent alcohol v/v (volume-volume percentage), it is considered only suitable for industrial use or further processing.
According to a report in yesterday’s Guyana Times, NEW GPC INC and Twins Manufacturing Chemists, two local manufacturers, had confirmed that they use 96 per cent alcohol/neutral spirits to manufacture a diverse array of local products for the domestic and export markets.
They noted that the charging of the excise tax on the alcohol significantly impacts the cost of production and therefore the competitiveness of their products against the increasing influx of cheaper imports.
According to NEW GPC, further exacerbating the situation is the revelation that Value Added Tax (VAT), at 16 per cent, is also levied on the excise tax, which now stands at 65 per cent.
Finance Minister Winston Jordan had outlined in his 2016 Budget presentation that his government would be increasing the excise tax as a means to bring “equity to the charging of excise tax on alcoholic beverages.”
He had highlighted that “the intent is to introduce a graduated, specific rate system for the collection of excise tax on alcohol based on the alcoholic strength. This is deemed to be the most effective way of dealing with importers and domestic manufacturers of alcoholic beverages. It will also be easier for the Guyana Revenue Authority [GRA] to administer as well as reduce significantly, opportunities for manipulating the values of the goods for the purpose of taxation”.
The manufacturers are questioning whether the Minister took into consideration the adverse effects that an increase of this type of tax would have on those manufacturing businesses that use 96 per cent alcohol/spirits in the production of their commodities, as opposed to those that use a lesser strength in the sale of alcoholic beverages.
The trickle-down effects of the tax increases are significant when one factors in the slow turnover of the private sector and sloth of the economy.
Most of the local manufacturing businesses that use neutral spirits of a high strength would now have to restructure to recoup their losses, possibly leading to persons losing their jobs and less monies circulating in the economy, thereby perpetuating the cycle of sloth.
AN ALTERNATIVE ROUTE
According to NEW GPC, if this situation is not rectified the company will seriously consider taking the route of importing alcohol as opposed to buying locally.
Currently, it is cheaper to import the neutral spirit from Trinidad and Tobago because both the excise tax and value added tax are waived by the GRA under the existing tax legislation to incentivise local manufacturing.
NEW GPC is calling on the Government to differentiate between alcohol utilised for manufacturing by local businesses and alcohol which is utilised at the consumer level to bring more clarity to the rationale between the tax increases.
Any local businesses desirous of using alcohol as a raw material will have to endure the now onerous 65 per cent tax or import foreign alcohol – an alternative that is coincidentally inimical to the interests of another local manufacturer and the Guyanese economy.
Alcohol is an input for many major industries such as cosmetics, food, beverages, hygiene and household products, etc.
This application of the tax on a raw material, which was meant for “sin goods”, is considered inexplicable.