Introduction to Value Added Tax

Value Added Tax (VAT) was introduced on January 1, 2007, together with an Excise Tax (ET) on motor vehicles, petroleum, tobacco products and alcohol. VAT along with ET has replaced six (6) existing taxes, including Consumption Tax.

VAT was introduced as a mean to accomplish the following:

  • To broaden the tax base, thereby spreading the burden of taxation more equitably;
  • To establish a fair system because it affects the broadest range of taxpayers so as to ensure more of the people who benefit from public services also contribute to paying for them;
  • To create a stable revenue source than previous and existing taxes because it depends only on how much people consume, it is less affected by economic cycles and the shock effect of world events, such as oil prices, foreign wars, acts of terrorism etc. It therefore avoids the economic uncertainties and fluctuations of direct taxation, such as income tax and corporation tax;
  • Due to the fact that VAT is a tax on consumption, at the point of sale, there is an immediate cash flow benefit to the Government;
  • Substantial amounts of revenue had been generated, even at relatively low tax rates, and the revenue accrues steadily throughout the supply chain;
  • Businesses are able to reclaim the VAT they pay on their businesses expenses, there is no tax cascade effect - you don't pay VAT on VAT, which existed with some of the previous taxes, e.g. consumption tax;
  • It is an efficient and relatively inexpensive tax to administer with operating costs typically in the region of only one per cent of the tax yield. Further economies in the overall cost of tax collection have been possible in Guyana because VAT replaced seven existing taxes. This means that a greater proportion of the taxes collected is available to the Government to spend on its social, economic and development programmes, for the benefit of all Guyanese citizens;
  • The tax provides for compulsory issue of tax invoices thereby providing an audit trail that gives an element of self – policing. This in turn makes the system less susceptible to fraud and evasion. There are also incentives for businesses to comply voluntarily with their legal obligations;
  • Since VAT is a transparent tax, the consumer knows exactly how much tax is being paid and which businesses are authorised to charge the tax;
  • Unlike corporation and personal income taxes, VAT does not tax investments and savings. Since VAT is payable on personal income when it is spent on goods and services, rather than when it is earned, this encourages saving rather than spending and indirectly rewards enterprise and encourages economic resilience;
  • Since VAT applies only to the domestic consumption of goods and services, the tax incurred in the process of producing exports can be fully identified and refunded, assisting exporters to be competitive in the world market. It does not damage export markets and allows existing businesses to grow;
  • It makes the country more attractive for investment purposes;
  • Visitors to Guyana making domestic purchases would contribute to the country's revenue;
  • The tax covers a broad range of goods and services and is also effective in controlling the growth of overall consumption. It is not surprising, therefore, that since the mid-1980s, many advanced countries of Europe and Asia have tried to rebalance their tax systems away from a heavy reliance on direct taxes and towards the taxation of consumption.