Statement on the rate of the Value-Added Tax

Following my presentation at the launch of Ram & McRae’s Value-Added Tax (VAT) Handbook on November 16, 2006, I have largely stayed out of the public debate on the Value Added Tax.

Part of the reason is that early in 2007, after the launch of VAT, a very senior political functionary had confided in me that the Government had discovered a significant error in the computation of the rate of the VAT resulting in the rate being higher than it should be. I was told of course that if I sought to divulge that information it would be denied.

Recent events and statements by public officials, letters in the press, and the increasing evidence of the effect on poor people of the ever-increasing spiraling rise in prices while the Government seeks to gain political mileage from their “initiatives to help the poor”, cause me to regret that I had not addressed this matter earlier.

I had decided that I would await Budget 2008 to see how the collections of VAT and Excise Tax compared with the amounts budgeted in 2007, since the Government had also publicly committed to a revenue-neutral regime of VAT and Excise taxes. The increase was a staggering 76% over budget for VAT and a more modest 20.9% for Excise Tax, an overall increase of 47.8%. Shortly after the Budget was presented I wrote my source reminding him of the conversation about the rate and offered the view that while part of the increase was attributable to the 4.7% growth in the economy and a 14% increase in imports over Budget, “a significant portion of the excess was attributable to the VAT rate initially being set too high”.

In my letter I recommended a reduction in the rate to 12%. My letter was acknowledged promptly but to date its contents have not been addressed with me.

The public is also aware that I openly posed two questions to the Minister of Finance on the issue (see Stabroek News June 19, 2008) as I was concerned about statements coming out of his Ministry and the Office of the President which could not accurately reflect their knowledge and which served to mislead the nation. In fact my information about the incorrect computation of the VAT rate was confirmed only recently by another senior political functionary and I would find it hard to believe that the Minister of Finance was not equally informed.

I hope the Government will now act honourably by correcting its mistake and reduce the rate at which VAT has been wrongly imposed for more than eighteen months.

Leave a Reply