Major tax threshold reductions, exemptions in 2019- Finance Minister announces in GYD$300 billion budget

Finance Minister, Winston Jordan on Monday announced increases in the thresholds of property tax returns for individuals and companies as part of an ongoing tax reform plan.

The 2019 budget is GYD$300.7 billion, 12.6 percent increase over 2018. Real Gross Domestic Product in 2018 is projected to be 4.6 percent compared to an expected 3.4 percent for this year.

Inflation next year is expected to be 2.5 percent. The central government overall deficit is projected to be 5 percent of GDP in 2019, below the budgeted 5.4 percent of GDP for 2018.

Delivering the 2019 National Budget, he said the individuals property tax returns would be calculated at a threshold from GYD$1.5 million to GYD$$40 million and for companies from  GYD$500,000 to $40 million.

Jordan also announced a reduction in the current rate for both individuals and companies, from 0.75 percent to 0.5 percent for the first $20 million in taxable net property, and the remainder being taxed at 0.75 percent.

He said the decisions to increase the thresholds were part of “an effort to restore equity and consistency in the tax regime between individuals and companies, and to further reduce the burden of Property Tax and Capital Gains Tax”.

In the area of Capital Gains Tax, he said government would households who sell their homes and invest in newer dwellings would no longer pay Capital Gains Tax once the newer dwelling is of equal or greater value, during the said year of assessment or within 60 days of the end of the year in which the property is sold.

As a result of that measure, he said the National Treasury is expected to lose GYD$200 million.

Due to inflation through the years, Jordan said the threshold for Capital Gains Tax arising from disposal of property would be increased from GYD$1,000 to GYD$500,000. The revenue loss is expected to exceed GYD$102 million.

In light of the wear and tear allowance given to buildings used for service and warehousing, and property tax valuations being updated to January 1, 2011 market value, government plans to remove the twenty-five year limitation.

“This means that Capital Gains Tax will be applicable on the gains accrued between the 2011 valuation or the date of acquisition, if later, and the selling price of the property when assets are disposed of, regardless of the date of acquisition. These three measures are contemplated to be revenue neutral, in view of the fact that the 2011 market value of assets are realistically closer to the current 2017 market value,” he added.

The Income Tax Act, he further announced, would provide for an allowance for wear and tear  on any building used for services and warehousing purposes. The rate proposed is 2 percent on cost.  The In Aid of Industry Act would be amended to allow for an initial allowance on buildings used for services and warehousing purposes. “This means that not only manufacturing companies will benefit, but also hotels and any industry that produces value that is primarily intangible, such as customer service, management, advice, knowledge, design, data and experiences. This measure will cost over $400 million, annually. However, this will again increase after tax profits in the hands of the beneficiaries.” he said.

He said small businesses involved in construction and manufacturing and registered with the Small Business Bureau would benefit from reduced income and corporate tax rates to 25 percent on taxable profits. The National Treasury would lost GYD$120 million.

For non-commercial or manufacturing companies, he said the rate would be further reduced to 25 percent from Year of Income 2019. “This measure, which keeps a promise by our Government to reduce the manufacturing rate to 25 percent before the end of our first term, will cost $1.1 billion,” he said. He noted that rate was reduced from 30 percent to 27.5 percent. “This enabled these businesses to improve their profit margins, thereby allowing for new investment and capitalization,” the Finance Minister said.

“The 2019 budget measures builds on the success to date by targeting production, incomes and exports. At the same time, they support the strengthening of some weak areas, including the closing of loopholes; and the simplification of business processes. Above all else, we have kept faith with our promise to give back to the taxpayer, through reduction of taxes and tax rates, as we continue to reach for a sustainable expansion of the tax base,” the Finance Minister told the House.

Other exemptions announced:

1. Exemption of pesticides used in the agriculture sector from Custom Duty and VAT. The revenue loss is $3.2 million.
2. Exemption of limestone used in the agriculture sector from Customs Duty. The revenue loss is $4.2 million.
3. Exemption from VAT, aircraft engines and main components/parts.
4. Exemption from VAT, concrete blocks used for housing and construction. This follows the exemption from VAT on complete housing units up to $6.5 million, which formed part of the measures in Budget 2018. Together, these measures will propel the housing drive, as Government seeks to make available decent and affordable homes to the population.
5. Exemption from VAT, equipment and chemicals for water treatment and production plants.
6. Exemption from VAT, orthopedic appliances and artificial parts of the body. (All items contained in the First Schedule to the Customs Act under Tariff Heading No. 90.21, being orthopedic appliances, including crutches, surgical belts and trusses; splints and other fracture appliances, artificial parts of the body; hearing aids and other appliances which are worn or carried or implanted in the body, to compensate for a defect or disability), and artificial teeth and others.
7. Exemption from VAT, Educational Robot Kits, in order to boost the ―Reading & Robotics‖ programme targeted to children in communities all across Guyana; to encourage more young people to become avid readers; and to develop necessary soft skills like communication, collaboration and conflict resolution.
8. Exemption from VAT, boats used in rural and riverain areas designed for the transport of goods and persons not exceeding 7.08 cubic metres (250 cubic feet). The import Duty of 5% will also be waived.

Meanwhile, the Finance Minister announced that the Guyana Revenue Authority (GRA) garnered GYD$7 billion from 15,000 taxpayers during a January to September, 2018 tax amnesty.

He said a special section would be established within the GRA’s large taxpayer unit to ensure oil companies pay their required taxes under production sharing agreements.