Friday, December 18, 2009

High VAT Rate Financing Inequality

Recall that the VAT rate was increased from 10% to 15% to finance the construction of quite a bit of public infrastructure. In contrast we didn't see anything on that scale since July 2005. Technically speaking then, government could have brought it back to 10%. If that had happened the debt-to-GDP ratio would have risen  to 57.72% as shown above. That's a little bit higher than where it was when Ramgoolam set off to Put People First.

Where did that 161.623 billion-rupee debt number come from? Simple. VAT receipts have amounted to about Rs17 billion per year over the last 4.5 years or if you prefer a total of Rs76.5 billion. One-third of that (5% is one-third of 15%) is Rs25.5 billion. Given that the last percentages of the VAT rate don't bring in as much as the first ones I chopped Rs5.5 billion off to get the round number of Rs20 billion. I then lumped it with the estimate from the Ministry of Finance.

Yeah, I guess you could call that reverse Robin Hood.


akagugo said...

I recall vividly Bunwaree adamantly and defiantly stating that VAT would be "revenue neutral" at the time of its introduction... Can you please "éclaire notre lanterne" on this?

Sanjay Jagatsingh said...

I remember that too. Will have to look at the numbers.

In any case our government should use our tax rupees to solve important problems that make us stronger or improve living conditions for one and all.