Private Sector Commission

April 23, 2018 Press Release STATEMENT BY ORGANISATIONS REPRESENTING BUSINESSES…

April 23, 2018

Press Release

STATEMENT BY ORGANISATIONS REPRESENTING BUSINESSES ADVERSELY AFFECTED
BY CHANGE IN VAT LAWS

The private sector organisations listed below, representing some of the key export sectors and foreign exchange earners to the country, wish to place on the public record our dissatisfaction over the decision by the Government to disallow exporters the right to reclaim the Value-Added Tax paid on inputs used to produce goods and services to be exported from Guyana. Such refund claims were allowed since 2007 when the Value-Added Tax was introduced.

For the reasons set out in this statement, we consider the decision by the Government and the Guyana Revenue Authority ill-advised and counterproductive to the interests of the businesses we represent and to the economy of our country.

Responding to concerns raised by the President of the Guyana Rice Exporters and Millers Association, that the action by the Government is negatively affecting the competitiveness of the rice exporters, Finance Minister, Mr. Winston Jordan advised that the export of rice is an exempt item, that exempted goods and services are not considered taxable goods and services, and that the provisions of the Value-Added Tax Act which provide for the zero-rating of exports do not apply. In justifying the position, the Minister volunteered that he had consulted with the Commissioner General of the Guyana Revenue Authority.

We respectfully point out that it appears the Minister is 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. Nevertheless, the Minister must be held responsible for the amendments which he piloted in the National Assembly.

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.”

The first amendment, which became effective on 1 February 2017, resulted in a significant shift of items from the zero-rated list to the exempt list. Nevertheless, exports remained on the list of zero-rated items. The second amendment, which became effective on 24 January 2018, resulted in a deletion of guidance from the Value-Added Tax Act on how to treat with an item appearing in both lists. No changes were made to the zero-rated list in respect of exports but the Minister and the GRA are advising that exports of goods and services listed in the Exempt Schedule are not zero-rated even if they are listed in the Zero-Rated Schedule.

The consequence of denying VAT refunds is that the exporter must either absorb the VAT, which can make their operations lossmaking, or seek to recover these losses by increasing prices for their exports of the goods and services, making them uncompetitive. Our members have asked us to remind policy makers that while the margin in the trade for their goods and services internationally are often small, it yet allows those exporters the opportunity to offer competitive prices on the domestic market. We therefore consider that should the Government proceed with this policy, the country, the economy, the exporters and consumers will suffer.

A fundamental premise of VAT as operated in every country which has introduced VAT, 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 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.”

At a time when the Government should be encouraging the export of products to earn foreign exchange and to avert the Dutch Disease and a “one-horse economy”, the measure will negatively affect the following products, among others:

Raw brown, white and parboiled rice; paddy; raw brown sugar; vegetable, corn or coconut cooking oil; fresh fruits and vegetables; plywood, logs and construction lumber; raw gold or diamonds; sanitary napkins; bleach, soap powder and soap; ice used in the fishing industry; uncooked fresh, chilled or frozen chicken; fresh, chilled or frozen pork, beef, shrimp, prawns and mutton; fresh, chilled or frozen fish, salted fish; raw gold or diamonds.

It would be superfluous to note that, as the Minister of Finance stated in his 2018 Budget Speech, he anticipated increased deficit in the merchandise trade by US$140 million and a decline in the current account. We note too that the sectors affected by this purported policy reversal not only account for a significant share of merchandise exports but also of foreign exchange earnings and the employment of labour. Our organisations and members submit that the purported policy will exacerbate an already bad situation - destroying businesses, industries and jobs - which the Government would clearly wish to avoid, particularly having regard to the prevailing weak performance of the economy.

Ironically, the policy will also affect collection from Income Tax and Corporation Tax since the absorption of the input tax will reduce taxable profits and therefore tax revenues. More fundamentally however, it is already affecting the international competitiveness of the country’s exports and hurting a slowing economy.

In closing, it is our sincere hope that the Minister will honour his stated intent and commitment made earlier this year that “None of these proposed amendments will negatively affect any individual or business.”

Issued by:
Private Sector Commission of Guyana and:
Guyana Manufacturers and Services Association
Georgetown Chamber of Commerce and Industry Limited
Guyana Rice Exporters and Millers Association
Guyana Forest Products Association


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