VAT TAX BRINGS IN THE MONEY FOR GUYANA

UNCLAS SECTION 01 OF 02 GEORGETOWN 000514

SIPDIS

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ECON EFIN PGOV ETRD GY
SUBJECT: VAT TAX BRINGS IN THE MONEY FOR GUYANA

REF: GEORGETOWN 27


1. Summary: The returns are in from Guyana's newly instituted
Value-Added Tax (VAT),and the government of Guyana is in the
enviable position of adding more dollars to its reserves than
initially projected. Leaked news of the positive returns
re-ignited issues debated when the tax made its debut in
January. The government promoted the tax as revenue neutral
and claimed prices would remain stable or fall. Business and
consumer voices challenged the government's ability to
effectively institute and monitor tax collection, argued that
prices would rise dramatically and called for protections for
the most price sensitive citizens. With first quarter results
in, opposition party, the private sector and consumer
advocates are once again calling for a review of the VAT to
ease the burden on Guyana's citizens. End Summary.

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VAT IS A SUCCESS
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2. On January 1, 2007, the Government of Guyana
introduced the Value-Added Tax, which was to usher in a
broader, more transparent system of revenue collection.
Although there have been bumps in the road, overall the tax
was instituted successfully. Based on first quarter counts
as reported in the Stabroek News, the government collected
more than US$11.5 million above its initial projections. In a
telephone conversation with the EconOff, Minister of Finance
Ashni Singh expressed disappointment that the results of the
revenue collection were leaked to the press as they may not
reflect accurately the entire VAT collection picture. "With
the benefit of a few months, all signals indicate that VAT
has been implemented successfully," he said, adding that no
major initiative of similar magnitude is undertaken without
certain bumps particularly with the specific challenges and
infrastructure limitatations in Guyana. "We have resolved
most of the issues with only sector specific issues
remaining." Compliance is within acceptable norms, Singh
continued, with "75 to 80 percent of businesses having filed
VAT returns. "He also said that the ministry will step up
activities in regard to compliance by initiating audits.

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HOW MUCH EXTRA MONEY? TOO EARLY TO SAY
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3. Singh said it is too early to reach a conclusion
regarding revenue earnings because of several variables. The
leaked figures, he noted, reported actual collections, and it
is not possible to draw conclusions from those numbers at
this time. For example, businesses may be entitled to refunds
for VAT paid on inputs but are not yet familiar with the
refund policy. He also noted that Cricket World Cup hosted in
March - April 2007 may have altered the economic income for
businesses over the first quarter and comparisons to the
first quarter of 2006 are also distorted because major
flooding in agricultural regions in January 2006 depressed
business activity. Furthermore, elections in August 2006 also
caused business investors to be more conservative last year.
According to the minister, given the dynamics of the economy
and the unusual traffic, more time is needed before a firm
conclusion can be drawn regarding revenue earnings.


4. (SBU) An expat contractor providing technical
assistance to the Guyana Revenue Authority (GRA) indicated to
EconOff that the tax earnings are not a one-time bonus but
will remain steady over the long term. Reviewing GRA's
progress to date, the head of the VAT unit at the General
Revenue Authority told the EconOff that since the tax was
introduced, the office was concerned mainly with registering
businesses, but with some 2,200 entities registered is now
concentrating on compliance issues, ie, ensuring that
businesses have receipt books or other systems in place to
account for sales and VAT collection and remittances.

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BUT WHO PAYS THE PRICE?
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5. Meanwhile, inflation rose 10 percent from April 2006
to April 2007, and those who projected that prices would rise
are now calling for adjustments to the VAT. Leader of the
Parliamentary Opposition Robert Corbin called for a
Parliamentary Committee to make recommendations to reduce the
rate of the VAT, pay increases for workers most affected by
the tax and the formation of a commission to review the
entire tax structure. The National Assembly defeated the
motion on a party-line vote. Guyana's primary consumer
advocate complained that consumers are facing higher prices
despite repeated government assurances that prices would
stabilize. Adding its perspective, the International


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