2% withholding tax “eating up” cash flow – Jagdeo

first_imgAs confusion surrounds the application of the 2 per cent withholding tax imposed by the Guyana Revenue Authority (GRA) and concerns grow over the devastating impacts this new fee will have on the business community locally, Opposition Leader Bharrat Jagdeo, an economist by profession, told reporters on Monday that the withholding tax will eventually “eat up” the cash flows of businesses that are mandated to pay the charge.The Parliamentary Opposition had argued against such a tax when the proposal was made by Finance Minister Winston Jordan during the 2017 Budget Debates in January.The withholding tax, meant to be deducted from every payment made to contractors by those who had contracted them and remitted to the Guyana Revenue Authority, was designed to broaden the tax base by bringing in the loop more avenues for taxes to be paid into the treasury. But there is currently some confusion about how this measure is to be applied, and proper interpretations from the relevant authorities are not immediately forthcoming. Taxpayers are still confused as to whether the tax would be applied to all “contractors” in the traditional sense, or all transactions involving contracts.GRA Commissioner General Godfrey Statia“If it is on all contracts then it will be disastrous, because if you sell something, (for instance your motorcycle) then it will be disastrous,” the Opposition Leader reasoned.He noted that even if it is just on contractors in the traditional sense of the word, then such a tax will still have negative impacts on the cash flows. “Even if it is the narrower definition — only contractors and suppliers — then it will still have a serious repercussion on businesses, and it will eat into people’s cash flow,” he explained.Jagdeo noted, too, that this measure is another in the line of administrative pressures being introduced by this government.Questions regarding the application of this tax include whether the 2 per cent will be paid on the amount over $500,000 or the overall sum once the contract exceeds $500,000. Businessmen have told this newspaper that this new measure will pave the way for lots of underground transactions to occur, resulting in an increase in tax evasion. Persons have also questioned whether this 2 per cent withholding tax is Government’s way of recouping the 2 per cent it removed from the Value Added Tax (VAT).The GRA, in its only statement thus far on the matter, has said that the law which applies to payments to resident businesses, individuals and companies with written “contractual arrangements” is not applicable to regular day-to-day commercial activities involving the trade in goods and services. Consequently, payments such as those made by rice millers to rice farmers for paddy purchased are not subject to the two per cent withholding tax.However, the phrase “regular day-to-day” activities leaves much for interpretation, as the GRA cannot define what is not taxable by such ambiguous terms; because what is “day-to-day” for one firm may not be “day-to-day” for another.The GRA had also explained that the withholding tax is applicable to non-resident disbursements and payments, noting that rates range from 10 per cent to 20 per cent, depending on the country of residence.The 2 per cent withholding tax, which took effect on February 1, is applicable to individuals and companies receiving more than $500,000 for the supply of services, goods, materials, equipment or personnel in the furtherance of services. The two per cent withheld for all contractors must be remitted to the GRA on a monthly basis, or within 30 days of making the payment to the contractor.This publication understands that some Ministries have already begun deducting the two per cent withholding tax from money paid to suppliers. However, this is not applicable to foreign trade companies, but, as per prevailing public opinion, rather serves as a discriminatory measure to local businesses.last_img read more