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Broken system forces delay in VAT reduction, “unlawful” $55b in tax exemptions and concessions “used to favour and reward friends”-Finance Minister

by Zena Henry

Minister of Finance Winston Jordan has stated that government upon assuming office inherited a “broken” tax system an must first fix it before they can implement Value Added Tax (VAT) reduction, but he has increased the list of zero-rated items that would cost the treasury GUY$680 million.

The Minister however proposed an amendment to the Value Added Tax Act 2005 Cap. 81:05 to add the following items that will now attract zero VAT: yogurt, cereals, fresh carrots, milo and ovaltine, nestum, mustard and mayonnaise, locally-produced fruit juice, locally-made chowmein, vinegar, locally-made uncooked pasta, ketchup, chicken sausages in packets, locally-produced Chinese sauce, baking powder, liquid detergent, household cleaning agents, rolls of paper towels, liquid detergent, household cleaning agent, and computer printers for non commercial use.

“Mr. Speaker, it is our fervent hope that retailers will pass on the benefit from the removal of VAT from these items to the consumer, through the lowering of their prices. The estimated loss of revenue is $680 million,” he said.

This was one of the campaign promises to be implemented in 100 days of the new government being in office. He told Parliament during the Budget reading Monday August 10 that instead they found some $55b in tax exemptions and concessions which offset the the high tax rates that characterize the system.

Jordan noted that, “We said that we would “immediately implement a phased reduction of VAT …” However, on our assumption to Office, we found a tax system that is characterized by high tax rates, resulting in innumerable requests for tax exemptions and concessions, which totaled $55 billion, in 2014; an unacceptable level of tax evasion that is clearly unlawful, discriminatory and stifles competition; widespread discretionary elements, which have been used to favour and reward friends, rather than encourage development; and low and/or no compliance.”

 “In short, the system is broken and we must fix it in a comprehensive manner – one that results in a transparent and predictable tax system that rewards effort, promotes investment, improves our national competitiveness, and removes distortions between and across sectors.”

Jordan said that, “it is for these reasons that we have delayed the phased reduction in the VAT, as we put in place a Tax Reform Committee to undertake a detailed assessment of the tax system. Since major work has been completed in this area recently, we expect the Committee to complete its work by the end of the year.”