Removal of VAT from water, electricity provides major spin-off benefits

With the removal of value-added tax (VAT) from water and electricity, corporations can expect a notable decrease in expenditure which they may be able to reinvest for profit.

Guyana Revenue Authority (GRA) Assistant Commissioner – VAT Audit and Enforcement Unit, Ms. Lavina Walrond said although 14 per cent may seem like a small fraction, this can translate to bigger things for major companies that will further benefit the populace.

“[You] now don’t have the VAT element so your cost should also be less […] So, industries now, whether you have a factory in manufacturing or even furniture, your furniture prices should not be as high considering that you now have the element of VAT being removed,” Ms. Walrond told DPI.

This in turn means that Guyanese will have more options of cheaper products across the board, especially from companies where electricity is a major factor in product cost.

“Only then the consumer would have the full benefit of this legislative change,” the Assistant Commissioner said.

Ms. Walrond explained that the electricity and water providers – the Guyana Power and Light Company (GPL) and Guyana Water Incorporated (GWI) – will also benefit.

“From the supplier’s perspective, the major suppliers of electricity and water, now that they wouldn’t be charging VAT, what happens is that means they are going back to zero-rated […] With providing water or providing electricity they would incur expenses and there are different things they pay [that] would attract VAT. They are now able to recover the VAT,” she indicated.

In terms of the VAT refund, companies that are 50 per cent or more zero-rated by law can apply with all of their relevant documentation, to receive the refunds monthly or at their convenience.

Now that GWI and GPL fall within this category, both companies can reclaim funds to reinvest for service expansion, while customers also benefit from a lower cost of living.

The Assistant Commissioner further encouraged other companies and small businesses to do a VAT registration with the GRA to reap viable benefits.

Provisions are made by GRA for both mandatory and voluntary registration. Mandatory registration is for organisations that earn above $15 million per year in gross sales or income. Organisations making less, can register voluntarily with the relevant documentation.

The removal of VAT on electricity and water is a 2020 Emergency Budget measure that was announced by President Dr. Mohamed Irfaan Ali on September 7, 2020. It was numbered among a wealth of other measures to cushion the effects of the pandemic and boost livelihoods.

The Value Added Tax Act states that the measure is in effect from April 1, 2020.