– cheaper to import

Local manufacturers are bearing the brunt of the burdensome 40 per cent excise tax on the purchase of alcohol, which negatively affects existing businesses because the cost of production eventually skyrockets.

Potential opportunities to expand in the local manufacturing industry are also hindered.
Most manufacturers buy their alcohol from Demerara Distillers Limited (DDL) and in the process pay a whopping 40 per cent in excise tax, which is an enormous burden in an already high-cost economy where there are major barriers, including the high cost for energy.

Strangely, it is exceedingly cheaper to import the same product from Trinidad and Tobago because both the excise tax and value added tax are waived by the Guyana Revenue Authority (GRA) under the existing tax legislation to incentivise local manufacturing. But importation has to be done in bulk and this poses another cluster of challenges to local manufacturers.
Therefore, any local businesses desirous of using alcohol as a raw material will have to endure the onerous 40 per cent tax locally or import foreign alcohol – an alternative that is coincidentally inimical to the interests of another local manufacturer and the Guyanese economy.

The alcohol purchased is referred to as extra-neutral alcohol or neutral spirits and is measured in Litres of Pure Alcohol (LPA). At the purchase strength of 96 per cent alcohol v/v (volume-volume percentage), it is considered only suitable for industrial use or further processing.

Alcohol is an input for many major industries such as cosmetics, food, beverages, hygiene and household products, etc and this application of the tax on a raw material, which was meant for “sin goods”, is considered inexplicable.

In an invited comment, management of two local manufacturers, New GPC Inc and Twins Manufacturing Chemists confirmed that they use 96 per cent alcohol in their manufacture of a diverse array of local products for the domestic and export markets. They noted that the charging of the excise tax on the alcohol significantly impacts the cost of production and therefore the competitiveness of their products against the increasing influx of cheaper imports.

Furthermore, according to NEW GPC, the GRA recently restarted imposing VAT on inputs such as empty bottles, which are used in manufacturing while at the same time it continues to deny payment of VAT refunds. Without a functioning system for refunds VAT effectually adds to the cost of the product and separately it becomes another burden on cash flows. The combination is a hindrance to manufacturing and/or to expanding local production.

Both companies mentioned they have been pursuing the Finance Ministry and the GRA since 2007 but have not been accorded even a single response on the matter. They also cited their frustration with the previous administration and the GRA for failing to heed their calls for a waiver.

On that note, the local manufacturers are calling on government, particularly the Business Ministry and the Finance Ministry to look into the issues affecting the local manufacturing sector, including concerns surrounding the burdensome excise tax.

Notably, when Budget 2015 was presented on August 10, Finance Minister Winston Jordan introduced the Business Ministry, which, he noted, was charged with the responsibility of addressing the issues in the local business arena in order to foster more investment in the country.

The Finance Minister emphasised the importance of business, “not only the engine, but also the driver of economic growth and innovation” stating that “this new Ministry will take action to boost entrepreneurship, provide incentives to local manufacturers and producers, as a stimulus for them to introduce greener technologies and increase value-added in their production lines, and build a new and more responsible economic model.”

The government, he said “endeavour(s) to create a fairer, more balanced and diversified economy, so that we are not limited to, and dependent upon, a narrow range of economic sectors, and where new businesses and economic opportunities are more evenly shared between regions and industries…”

Additionally, Business Minister Dominic Gaskin issued a media release on September 21, acknowledging the “problems that are preventing manufacturing from developing in Guyana”. He committed to addressing those problems.

Recently, at the Guyana Manufacturing Services Association (GMSA) Annual Award Ceremony, the Finance Minister lamented the state of the local manufacturing sector, noting that there seems to be an overwhelming preference in the private sector to “chase the quick dollar by importing a lot of cheap products to be sold in a low wage economy.”

In urging government to look into the issues raised, local manufacturers noted that a waiver, which is a small measure, can lead to innovation since ideas will then become economically viable.

Moreover, the local manufacturers said they share the minister’s sentiments that policies are needed to encourage and incentivise growth in the manufacturing sector for the many economic benefits it presents, and that Guyana cannot continue for another 50 years and still not have a well-developed manufacturing industry.