Guyana Observer News

After four years, VAT/ET projected to rake in $165.7B, but what has been its impact on Guyanese?

Sunday, 29 August 2010

By Emile Mervin

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When the Jagdeo administration said its sound financial and economic policies insulated Guyana from the impact of the 2008 global economic quake, was that true, or was the huge pool local and foreign currencies floating around in Guyana responsible? Government has been spending hundreds of millions on public-private partnerships investments and awarding of hundreds of millions in contracts for poor quality projects, without challenging contractors to reimburse the state – the disastrous Supenaam Stelling being a classic example here. Certain banks are reporting huge profits on tons of money sitting in their vaults, while looking for qualified locals to borrow – many of whom are too poor to even qualify. And certain businesses that constitute the underground economy are doing brisk and profitable businesses with negligible overhead costs and without the help of banks.

In fact, there is a growing public perception that certain banks’ huge profit margins actually hinge on underground economic activities and that much of this massive build up of cash reserves needs to be ‘washed’. But where exactly did all this money come from, seeing annual export earnings (US$600M to US$700M annually?) can not be the sole source?
After much probing, the only logical explanation I came up with was that, besides export earnings are found the following four areas:
1. Foreign loans: In 1992, Guyana’s foreign debt stood around at US$2B, but after our creditors guided President Bharrat Jagdeo through well laid out steps, Guyana repaid some loans, which then encouraged the creditors to eventually write off US$800M.
However, in his 2010 Budget presentation, Dr. Ashni Kumar Singh, reported that as of 2008 Guyana’s foreign debt stood at US$834.3M, and that by this year end, it is projected to stand at US$1,069.8B. So, despite Government’s boasts of reducing foreign debt incurred by its predecessor, Guyana has resumed its borrowing binge (which must be repaid), leading me to now ask if Government kept some of the loans or disbursed all to contractors, some of whom pocketed lots of money for poor quality projects?
In addition, one Auditor General Report said there was $35B in ‘special accounts’ that should not be there. And then there are the hundreds of millions of dollars from the privatization/sale of state properties along with hundreds of millions of dollars in the Lotto/Consolidated Funds debacle. It is clear, therefore, that not only is Government awash in money, but it’s on a blasé spending spree on projects without conducting prudent risk-reward analyses.
2. Foreign remittances: Annually, US-based Guyanese send home somewhere between US$300M and US$400M, and the number could easily rise to half a billion US dollars or more when we add ‘unreported’ foreign exchange taken in to Guyana by passengers/visitors and remittances from Guyanese living in other countries.
3. Money laundering: One report by the US State Department a few years ago charged that the informal economy was 60% of the formal economy, meaning that money laundering was crucial to the actual strength of the Guyana economy. Only a forensic audit of banks to determine their clients’ sources of monies deposited will reveal the true extent of the role of money laundering to the buoyancy of Guyana’s formal economy, but my guess is that this is a multi-million dollar year-round operation.
4. VAT: Guyana is now numbered among 140 nations with VAT. Introduced in January 2007 and linked to Excise Tax (ET) under the auspices of the Guyana Revenue Authority (GRA), it formed part of Government’s modernization and streamlining of Guyana’s tax system. In the first year (2007) VAT-ET brought in $36.7B, which was reportedly 76% above projection.
In 2008, Government pulled down $37.1B and ignored the TUC’s plea for the government to reduce VAT from 16% to 6%. In 2009, the haul was $44.7B, even as the PNC’s Volda Lawrence’s timely suggestion (in 2009) that Government uses some of the VAT money for a ‘stimulus package’ to Guyanese (following the 2008 global recession) fell on deaf ears.
In his 2010 budget presentation the Finance Minister said VAT and ET are targeted to increase by 5.6% to $47.2B ‘due to higher VAT collections on both imports and domestic supplies consistent with projected increases in business activities’. Altogether, that will be $165.7B.
Without those four sources likely contributing to this massive cash reserve in Guyana, did Government really have a prayer insulating Guyana against the impact of the global economic quake in 2008? Add to that its carefree spending binge and I can only now imagine ‘what might have been’ had LCDS started raking in the promised hundreds of millions US dollars a year. Phew! But apart from spending on projects lacking transparency or justification, can this horde of cash be also used to ‘buy’ political favours and support in 2011? Selah!
One final point on VAT: According to a GINA release on January 6, 2007, Government committed itself to continuously ‘monitor and study how VAT will affect consumers and the cost of living and take appropriate corrective action’. And in his 2008 Budget presentation, Finance Minister, Dr. Singh promised to conduct a study to determine the impact/feasibility of the VAT system.
Editor, did your newspaper ever publish Government’s findings of its promised impact studies of VAT on Guyanese, or surveyed Guyanese to determine, after three years and eight months, whether VAT is really working for them or the Government only?
With 67% of government revenue in 2010 projected to come from taxes, VAT has to be seen as a Draconian means to generate additional income on the backs of struggling Guyanese, because whatever costs businesses incur by paying VAT are automatically passed on to all consumers in the form of higher prices for VAT-related commodities. Selah!
Hopefully, Guyanese are wising up to this government’s ‘trick-o-nomics’ being passed off as genuine economics.

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