Dramatic reduction of fuel smuggling seen after removal of excise tax – GRA

The content originally appeared on: INews Guyana
[Filed Photo] Smuggled fuel discovered in canoes

– says work by LEID also led to greater compliance

The Guyana Revenue Authority (GRA) has revealed that since the Government removed the excise tax on fuel – a decision prompted by the rising cost of living – there has been a welcome side effect of fuel smuggling being dramatically reduced.

In the Auditor General’s 2022 report, it was revealed that the GRA collected $7.2 million in fines and $1 million in sales of seizures. Interestingly, however, the number of files opened on the seizure of goods declined by 64 per cent from 2021 to 2022, equivalent to $193.6 million.

GRA then explained the reason behind the reduced money collected by its law enforcement department over that period. According to them, the Government’s decision to remove excise tax from fuel in March 2022 has also had a positive effect on combating fuel smuggling.

“Over the past years, a significant percentage of the revenue recovered by Law Enforcement and Investigative Department (LEID) was mainly from seizure of smuggled fuel (diesel/gasoline) and reconciliation exercises regarding the importation of same for tax-exempted beneficiaries,” the Authority explained.

“However, since the excise tax rate on fuel was reduced to 0% in March 2022, there has been little to no reported cases of smuggling of fuel or any seizure of same and thus a negligible to no revenue collection from this activity.”

This is because, since the reduction of the tax rate, there have been little to no reported cases of smuggled fuel, due to the removal of incentives for smuggling. Added to this, GRA said that its Law Enforcement and Investigative Department (LEID) has also intensified its work, leading to greater compliance.

“The many activities conducted by LEID to enforce the various tax laws have resulted in a greater level of compliance by taxpayers and businesses that were previously non-compliant, thus minimal revenue collection in those areas. During early 2022, there was still some impact from the COVID-19 pandemic which affected revenue collection during that period.”

“Moreover, there is no revenue from the seizure of the following restricted/prohibited items which are some of the most popular smuggled goods such as: Chicken – all such seizures are donated to Government Agencies; Cigarettes – all such seizures are destroyed; Mosquito coils – all such seizures are destroyed; and Prohibited items – are usually destroyed.”

Before removing the excise tax on fuel entirely in 2022, the Government had been steadily reducing the rate. For instance, the rate went from 50 per cent to 35 per cent in February 2021, and then from 35 per cent to 20 per cent in October 2021.

This was in keeping with Government’s policy to adjust the taxes on fuel, to mitigate the impact of rising fuel prices on the world market. The Government’s intervention saw gas prices at the pump charged by State-owned Guyana Oil Company (GuyOil) being reduced from $269 per litre to $215 per litre.

Additionally, diesel prices were reduced by 15 per cent from $265 per litre to $225 per litre. These changes took effect from October 2, 2022. Dr Singh explained that during the first half of 2022, global oil prices surged more than 50 per cent, increasing from US$77 per barrel at the end of December 2021 to US$120 in June of this year. Oil prices rose as high as US$137 per barrel primarily as a result of the Russian invasion of Ukraine.

“The impact of the dramatic increases in oil prices were significant and given the interconnected nature of the global economy, translated into higher cost of landing fuel in Guyana. To mitigate the impact of rising global fuel prices on domestic consumers and the productive sectors to which fuel is a key input, the Government lowered the excise tax rate on both gasoline and diesel from 10 per cent to 0 per cent in March of this year.”

“It would be recalled that, previously, during the Budget 2022 presentation, the Government lowered the excise tax on both gasoline and diesel from 20 per cent to 10 per cent to minimise the impact of rising global oil prices,” the Minister had further explained.