Gov’t seeks IMF’s counsel on lowering VAT
A reduction in the current 16% Value-Added Tax (VAT) rate is not possible before the next budget, according to Finance Minister Winston Jordan, who says that although the Tax Reform Committee (TRC) has made such a recommendation, government has sought guidance from the International Monetary Fund (IMF) to ensure that the right decision is made.
“So it is on the cards. If it happens, I don’t see it happening before the next budget. It will be extremely difficult to just bring in a VAT reduction in the middle… of the year,” he told a press conference yesterday.
The APNU+AFC, in its elections manifesto, had promised a reduction in VAT within its first 100 days in office. Many have expressed disappointment that this promise has not been honoured.
The TRC, in its 133-page report which was delivered to Jordan in January, had proposed that the tax be lowered to 14% along with the introduction of an intermediate rate of 7%.
President David Granger, on a special edition of “The Public Interest” earlier this month, was asked about the lowering of the rate and he said he was awaiting the report for government to take action. That report, when Granger spoke, would have been in the possession of government for almost five months.
Jordan told reporters that the recommendation made by the TRC is “nothing new. It merely follows on the promise that the government had made to reduce VAT.”
The minister explained that there are various options available for reducing VAT and what government would want to do is have the “widest possible consultation” because some of the options available would involve putting the VAT on some items that “could cause trouble.”
“I said it before, you have to bring to the mix things like water that doesn’t attract VAT at the moment, electricity that doesn’t attract VAT at the moment,” he said, while using Trinidad as an example to show that when the VAT was reduced there, the base was broadened, meaning that all exemptions were removed. He said that in Trinidad even baby food attracts VAT.
“In finally coming to a decision, we have to be prepared for what is doable in terms of having to remove the exemptions and put a reduced rate on VAT and what may not be doable and so that discussion is engaging the attention of the Cabinet. Once, more or less, something final has come out there, we will throw it out to the public and then…VAT is a very touchy issue,” he said.
Jordan added that the TRC did some good work but given the government’s concerns about the implications of reducing it, it has asked the IMF, through the Caribbean Regional Technical Assistance Centre, to send a mission to do a complete assessment of Guyana’s VAT system, including where it is today and the options for changes.
With regard to the other recommendations, he said that some of them were implemented in the 2016 budget. The others, he said, are still before the Cabinet
“Whatever is agreed will not be implemented before the next budget because there are already a set of measures in the existing budget for which…we have already gone to the Parliament. Even if we agree to a measure now, you still have to get it to Parliament and you still have to get it debated and passed,” he stressed.
Jordan noted that VAT was reduced on many consumer items and that “there is virtually nothing more to reduce VAT on.” As a result, he said, people have moved from the VAT reduction to the rate reduction. However, he said that if one takes a look back at this year’s budget, it would be noted that the Private Sector Commission had advised government not to reduce the rate. “They were asking the government instead of reducing the rate, let us look at more VAT reductions on items. We did say that we will reduce the rate, this is a commitment that we intend to uphold but it is a commitment that we want to ensure that when we do it, we don’t have to hastily pull it back and for that we are required to do as much work as possible before we move on,” he said.
He reiterated that a VAT reduction in terms of rate “would not just come with that… “We [would]have to expand the base on which the VAT is applied so as to recoup lost revenues for the reduction.”