Guyana targets increase in disposable income for citizens

 

The Guyanese government in its recent budget has reduced income tax from 28 per cent to 25 per cent and raised the taxable threshold. It has also introduced many other measures to increase disposable income for citizens.

KPMG in its budget overview indicates that although no new taxes have been introduced, the 2025 budget has increased by 20 per cent, driven largely by higher oil production and a larger share of oil sector revenues.

The company says, “The budget’s proposed measures are expected to raise disposable income, encouraging consumer spending, spurring economic growth, and improving living standards. However, the government must be vigilant in managing inflationary risks, particularly if demand outstrips supply.”

It is noted that inflation is projected to remain at 2.8 per cent in 2025, driven by rising demand for housing, food, and fuel. Higher global energy prices and local demand for goods and services will continue to fuel inflation, although government subsidies and price controls may help alleviate the pressure on essential goods.

“Additionally, the labor market is expected to experience steady job creation, particularly in construction, oil, and services. However, regional disparities in job availability may continue to exist. Moreover, starting in 2025, the personal income tax rate will decrease from 28 per cent to 25 per cent, providing potential relief for workers across various industries.”

KPMG said that subsequent to the completion of the Gas to Energy (GtE) Project, electricity costs will be reduced by 50 per cent for consumers.

“Despite the high initial investment, the significant capital investment into the 300 MW power plant, should stimulate economic growth by encouraging investment and by extension the expansion of the manufacturing sector, fostering a more competitive economy. Further, both household expenses and business operational cost should also decrease.”

Other measures to benefit consumers are outlined by KPMG as follows:

Abolition of Bridge Tolls : Upon completion of the new Demerara River Bridge, tolls will be removed for all vehicles, including the Berbice and Wismar Bridges, saving over GY$3.5B annually for more than 50,000 daily users.

Abolishing tolls would result in government losing a steady source of income, which could impact infrastructure maintenance and other projects. However, this revenue loss due to the removal of tolls will provide savings to commuters.

Additionally, this initiative enhances regional integration and facilitates easier travel across the country, boosting internal trade. However, improved connectivity may lead to overburdened infrastructure, congestion and higher maintenance costs due to likely increased traffic volumes.

Containing the Cost of Fuel: Since March 2022, the government has maintained a 0% excise tax on petroleum products, to protect consumers from high fuel prices. The maintenance of stable prices continue to provide financial relief for consumers, as it helps maintain stability in fuel prices, benefiting households, transportation, and businesses reliant on fuel.

KPMG notes that this relief comes at a high annual cost of GY $90B the Guyana government. Further, the local market may still be vulnerable to global market trends, despite the government’s shield from high fuel prices, which may put long term sustainability in question.

The government has also extended the adjustment of freight charges to pre pandemic levels until December 2025, costing GY $6B annually, to alleviate high shipping costs and ensuring more stable prices for goods. Given the global nature of shipping costs, the measure may only provide temporary relief, and long-term solutions may be necessary KPMG said.

 Information Source: KPMG

Photo credit: OG Productionz photo

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