Lower cost of goods for consumers with ease on freight taxes – Finance Minister
Lower cost of goods for consumers is expected following President Dr. Irfaan Ali’s announcement of the reduction in freight charges to pre-pandemic levels.
This is according to the Senior Minister within the Office of the President with responsibility for Finance Dr. Ashni Singh.
During an interview with the News Room on Tuesday, Dr. Singh related the prices of goods that are imported to Guyana are usually at a “CIF price” and that price is used to calculate the amount of taxes that has to be paid.
Cost, insurance, and freight (CIF) is an expense paid by a seller to cover the costs, insurance, and freight of a buyer’s order while it is in transit. The buyer, in this case, is an importer who is buying goods internationally and shipping them to Guyana to sell in the local market.
Because of the challenges of the COVID-19 pandemic, the cost of shipping goods to Guyana has increased. Therefore, with the cost of freight increasing, the overall cost of the goods would increase.
“What we are going to do is adjust the CIF value to reflect a pre-COVID freight (cost) and then apply the tax rate to us.
“So that potentially will reduce, at least, the taxes on the items that are being imported into Guyana and will, in turn, translate to reduced cost of the items getting to the wholesaler, and getting to the retailer and getting to the final consumer,” he explained.
That means that importers will be paying a lower tax on the goods they import.
And, with the government making this adjustment, it means that it will be collecting less taxes from the importers. In fact, Dr. Singh highlighted that the government will forgo an estimated $4.8 billion in taxes over the six months the President’s order will be in effect.
This adjustment follows a suite of tax relief measures already granted to businesses over the past year as part of the government’s economic policy and also in light of the crippling effects of the COVID-19 pandemic.
And, since taxes are a mechanism used by the government to accumulate money to spend (revenue), the freight adjustment and the pre-existing tax relief measures means that the government will have less revenue.
“…. at this stage, we are not at the point where we expect that this will necessarily or automatically translate into reduced spending,” Dr. Singh said however.
He also related that the government is still pushing to get the entire national budget spent.
Importantly, too, he emphasised, “We constantly have to strike an appropriate balance between the revenues that we raise, the expenditure that we incur and the manner in which we finance the expenditure.”
In striking that balance, he said that it is crucial that the government is able to provide necessary relief to people while stimulating economic activity and preserving a sustainable fiscal position.