REFORM THE TAX SYSTEM AND RE-INTRODUCE THE VALUE ADDED TAX (VAT)
The organizations listed below have developed this statement on VAT over the past three weeks. While we acknowledge that the government has heeded requests for relief, we urge the establishing of a broad-based mechanism to begin the comprehensive review of our taxation system which VAT has rendered more urgent. We are convinced that a truly enabling financial environment can offer great hope to our people and facilitate sustainable development, rather than a piecemeal approach by way of changing VAT legislation. Other Caribbean countries, notably Grenada and Belize, when their original versions of VAT were found to be defective fundamentally revised their tax systems.
One of numerous illustrations of the need for systemic reform is the issue of VAT being ‘revenue neutral’, i.e. that the amount of revenue collected by VAT would equal that collected under previous arrangements. Expansion of zero-rated items requires, therefore, that the revenue foregone be collected from excise taxes referred to in the companion excise and income legislation.
A central pillar of a democratic society is the social contract between citizens and government, which requires citizens to pay taxes in order to provide government with the funds to implement programmes to improve their standard of living and the quality of their lives. Taxation, therefore, is at the heart of the democratic process. In requiring all citizens to accept a fair share of the tax burden the tax system aims to off-set the negative effects of the unequal distribution of wealth and opportunities.
Unlike taxes which relate to income, VAT focuses on value-added on goods and services at each stage of the production cycle to the final consumer, created by both private and corporate citizens. Thus, introducing VAT without making comprehensive adjustments to the tax system, taking into account specifically that private and corporate citizens also pay income taxes, is bound to result in hardship, particularly for the poorer sections of the population and weaker businesses. In essence tax reform is a social, economic, political, and accounting process.
It is widely believed that the value-added system of taxation could be made a fair and efficient means of mobilizing revenue needed by Government to carry out its work on behalf of all citizens. This position seems to have been endorsed by the approximately 140 countries where the VAT system operates. Acceptable principles of fairness and equity must be constantly used to assess the effectiveness of the taxation system. It should be noted that Guyana is exceptional in that a wide swathe of external businesses are given legal “tax holidays” especially where our natural resources sector is concerned. The principal issue therefore is an assessment as to whether the conditions for the application of the principles of fairness and equity in the tax system exist. Such an assessment requires responding to the following questions:
Ø Do we have a fair and efficient tax administration system?
Ø Do we have an overall tax burden that does not discourage effort or encourage evasion?
Ø Do we have an established culture of paying taxes and of businesses keeping books?
Ø Are the incomes of a substantial majority of citizens above the poverty line?
Ø Does a parallel economy flourish and is the smuggling of goods significant?
Ø Do citizens have a clear vision on the best way of developing Guyana’s resources?
Ø Is the rule of law effective?
Ø Does a sufficiently stable and inclusive political system exist?
Ø Does the Guyana Revenue Authority have the capacity to handle its expanded responsibilities against the background of uncertainty that prevails and the cross-country effects of the VAT, including in rural and interior areas?
Most citizens have answers to these fundamental questions. Moreover, the manner in which VAT was introduced has produced ongoing hardship, namely by failure to consider adjustment of the overall tax system; failure to take into account expert advice; failure to assess the impact on poorer families; failure to avert the compounding effect of a high income tax rate and a high VAT rate; and finally, by deciding on an extremely high uniform rate that has generated widespread indignation. Long before the VAT was introduced, representations to the Parliamentary Select Committee by such bodies such as the Private Sector Commission, the University of Guyana’s Institute of Development Studies (IDS) and others raised these issues, suggesting more caution and more deliberation on this matter. All of these matters must now be re-visited to assess what can be done to make VAT work equitably and efficiently.
January 30, 2007
Amerindian Peoples Association (APA) Jean La Rose
African Cultural Development Association (ACDA) Eric Phillips
Church Women United Patricia Thomas
Guyana Citizens Initiative Bert Carter
Guyana Coalition of Citizens with Disabilities Julie Lewis
Guyana Council of Churches Rev. Alphonso Porter
Guyana Trades Union Congress Lincoln Lewis
General Workers Union (GWU) Norris Witter
Guyana Human Rights Association (GHRA) Michael McCormack
Institute of Development Studies (IDS) Clive Thomas
National Association of Agricultural, Commercial & Industrial Employees (NAACIE) Kenneth Joseph
Red Thread Andaiye
Society Against Sexual Orientation Discrimination (SASOD) Joel Simpson