Daily Archives: 06/09/2011

Guyana‘s Development—Taxation reviewed

Guyana‘s Development—Taxation reviewed

By: Cyril Bryan. Editor, Guyanese Online Editorial – June 2011

Looking Inward: Since the 1950‘s, most residents have looked outside of Guyana for their betterment. However, in today‘s changing world, Guyana‘s residents have to ―look inward‖ rather than ―outward‖ to achieve sustained development; but changing their outward looking attitudes will not be easy. The world’s economic downturn has slowed the emigration process, but in essence, nothing has changed – the brain and expertise drain has continued as salaries and wages are too low.

It is my belief that the best way to ensure the economic growth of Guyana is to make it attractive for private investment. The first requirement is the solving of the racial divide, which is now used for economic/political advantage. The second is the reduction of government controls and the restrictive policies seen in uneven taxation and discriminatory practices when they are applied. Here are some of my ideas on the matter of Taxation.

Guyana‘s Economy: Although Guyana‘s economy has shown economic growth in the last five years, it was growth from a fragile base. The country is still indebted for over US$1Billion, and the recent 2011 budget reflected continued borrowings (Expenditure = G$161.4B versus Income of G$112B, of which the Guyana Revenue Authority collected G$104B (G$10B-Customs; G$44.1B-Inland Revenue/PAYE; G$50.2-VAT; Non-Tax G$7.2 B.

The sugar industry has had low productivity due to bad weather conditions; strikes and Skeldon factory breakdowns. Rice produc-tion is now stable but suffers from unreliable regional CARICOM markets, although the recent Venezuela agreements should help.

In both 2009 and 2010, it was reported that gold mining earned more export revenue than sugar and rice combined. This means that monitoring must be further strengthened in the gold mining industry to ensure that declarations are made and taxes paid, since the Brazilians now control most of this industry. Gold production was up 27% to 317,316 ounces in 2010, the highest ever.

Taxation in Guyana: Tax avoidance and tax evasion are standard in most countries. It is the same, but more so, in Guyana. There is a large underground economy estimated at over 50% of business transactions. There is also the smuggling of goods from Venezuela (mostly oil, beer), Suriname and Brazil. The borders are porous and all attempts to control smuggling have failed. Most of all the bribery of officials is reflected in the discriminatory implementation of the laws to their personal benefit, as the Customs Department is riddled with corruption.

The solution—A Duty Free Zone: At present, Customs collect only G$10Billion or US$50M/yr. For some, Guyana is a already a duty-free zone and they are getting rich, as they hold a competitive advantage on those who pay duties. The solution is to scrap the duties on all goods coming in the country and make Guyana a duty-free zone as it basically is now for some in the Corentyne and Lethem areas. Trade would explode, the country will attract regional and international investment and the engrained corruption in the Customs Department would be largely eliminated.

Value Added Tax (VAT): The lost Customs revenue of US$50M could be recouped in a lowered threshold and VAT rate—basically a sales tax on all businesses. Today, too many companies avoid taxes as the VAT threshold is too high. Make it a sales tax at a lower rate like 10% (easy to compute), and make ALL businesses pay taxes on their sales. There are businesses today selling millions of dollars but pay no tax, yet they demand government services. Many of these businesses sell smuggled goods but are below the VAT taxation threshold.

Personal Income Taxes: There are some regional countries that have no personal income taxes e.g. The Bahamas, Cayman Islands, Bermuda and St Kitts/Nevis. In Guyana there are many in the ―underground and drug economies‖ who make millions but pay no taxes. However, the poorer folk who work for a salary have to pay taxes on salaries of over $200 US/month. Some-thing is definitely wrong with this picture.

Having tax deductions on low salaries suppresses wages. It also encourages the underground cash economy. Most people on wages do not make a ―living wage‖ and this encourages internal theft, bribery and low productivity. Most people have two or more ―jobs‖ to pay their bills or await their monthly remittances and barrels from relatives overseas. A serious analysis has to be paid to personal taxation and Guyana does not have to look far to copy a workable and equitable solution.

Company Taxation: Recently, taxation on company profits has been reduced but they are still 30-40%. High taxes on profits are usually not reflected in high taxes collected, so why have these high taxes on company profits? Companies move their profits and assets around to avoid taxation. A better solution is to use the flat tax on all worldwide sales similar to that applied to ―Offshore Business Companies. Having a flat tax of about 2% on all sales would ensure greater revenue and also attract ―offshore businesses‖ to Guyana.

I believe that the systemic changes suggested here will increase investment in Guyana and lessen the government‘s stranglehold on the economy. There has to be more efficient and transparent governance, less ministries and duplication, and stringent controls of government spending and borrowings. Irrespective of which party(ies) are in power, it will require the re-thinking of government policies and implementation processes, with a focus on attracting and promoting private investment to Guyana.

Editorial from the Guyanese Online Newsletter – June 2011