Chairman of the Guyana Revenue Authority (GRA) Rawle Lucas says the system of granting tax concessions will be reviewed and he believes that granting incentives to large foreign companies as opposed to local firms, would be more beneficial to the country.
“We do feel that our system of concessions needs to be reviewed because we are not sure that it is receiving the desired outcomes,” Lucas told Stabroek News in a recent interview. He said while there has been much criticism of the granting of huge tax incentives to large foreign companies, it is needed to entice those investors who in turn bring in capital and help to develop the country.
In the past, Lucas said, the enforcement of contractual stipulations has been lax and more stringent measures are being put in place. He emphasised that after foreign companies are awarded concessions, it is the duty of government to strictly monitor their performance.
“We are still hearing complaints about unemployment. There was supposed to be investments made in the country but you know, there are complaints about unemployment, which perhaps (means) the rate of employment or the level has not been achieved and therefore we will have to review this arrangement and make sure our system of concessions is better and doing better than it has been doing in the past,” he said.
“Giving the investment to the foreign investor is important, but remember the foreign investor also has to act responsibly and comply and meet and try to satisfy the conditions that enabled him or her to get the concessions. It’s not that concessions are given and then abandoned, it may appear that way…it’s not like getting the police and go seize this or that. Before it gets to that, you have to ascertain whether the company has or has not fulfilled the conditions of the investment agreement that they are supposed to for a specific period in which they wish to enjoy the concessions. It’s complicated. It’s not that easy and I don’t know how many of our people have studied some of these methodologies that are required,” he said.
“You need to be monitoring what they are doing. I don’t know why it is the previous administration was not as stringent in monitoring the performance of these companies. I don’t know why they chose to behave the way they behaved. That is not the behaviour that is entered into when the agreement is being reached with these investors,” he added.
‘Technologies
and Expertise’
Lucas, who is also the Executive Director for Economic Cooperation and Global Trade Investment within the Ministry of Foreign Affairs, says foreign companies bringing new technologies and expertise stand a greater chance of getting tax concessions compared to their local counterparts who are oftentimes cashing in on tax breaks rather than seeking loans.
“We have to be careful of the type of business models that we are encouraging. It seems to me as if we are encouraging business models that are not taking sufficient account of the cash flow that they would need. Some companies might think they don’t need to go to the bank to make sure they have enough cash flow to carry them through any operating cycle or financial year,” he asserted.
“They might believe that the best way to get that cash flow is to go to the government and ask the government for a tax concession, which means therefore, that government is financing somebody’s business decision which should be sufficiently strong to sustain itself, not at a cost to the taxpayer but to that business. If the business was encouraged to develop a proper model then they would factor in financing from the financial institutions and some of the small loan lending institutions we have,” he added.
‘Novel’
Lucas said the question needs to be asked as to whether business models that are being developed locally are sufficiently profitable in order to meet the objective of the investor or whether they are simply relying on the government to finance them for free. He declared that locals should only be given incentives if their business ideas are novel and significant fiscal incentives realised for the country.
“You have to remember, where local companies are concerned, unless somebody is coming up with something novel I don’t see why (they should be given concessions). Let’s say, a guy has a small plot or a big plot of land at the back of where he lives and everybody else has the same access…government must give you tax concessions to go use the land? I just don’t understand that,” he reasoned.
“I can understand the guy saying ‘Guyana imports $100 million in say (hypothetically) carrots every year. Then somebody comes along and says ‘Well I have done the research and I know that in some location in Region 8, somewhere in the mountains, the soil is good enough for us to produce carrots there. However for me to be able to do that and produce, I may need some incentives but I have the technology that will allow me to do it. Guess what, that person might be able to go in there, produce the carrots and what that person may be doing is saving us $100 million a year and the concession you might be giving that person is just a fraction. Under those conditions, it makes sense to give an incentive but just to give people to say they producing something is really not helpful to the economy,” Lucas asserted.
‘Resource shift’
In terms of larger foreign investors, Lucas explained what government is trying to do is to get them to shift resources from their country and bring it here but it is a tough negotiation as this third world nation has to complete with over 200 other countries for the same set of resources.
“Since we don’t have some of the endowments that others might have in terms of good quality institutions, good political administrative decisions, good infrastructure, cheap energy and other things, then we have to find other ways that we can factor those resources and that is why Guyana has always looked to use the fiscal incentives as a move to bring people here,” he said.
“So what you are getting is an additional injection of resources into the country when a foreign company moves resources from his home country to our home country. That is not what is happening locally. Locally, we all are trying to get money out of the same pool, out of the same resources so when the government gives concession to one group of people then it means another group is being denied access to those resources. That group has to incur costs in order to make that investment,” he added.
According to the GRA chairman, foreign companies stand a greater chance at getting incentives because they are larger and most times are coming to invest in areas that usually require large amounts of capital outlays and sophisticated technology.
And unlike locals, he said, the foreign investors have to factor in political risk which may involve the movement of their resources.
“If we look at our mining sector, none of us have the technology or equipment to invest in bauxite and gold and all of that stuff. We don’t have the resources, we have to rely on foreign investors to bring the capital to bring the equipment, finances and so forth in order to do the investment,” he said.
In contrast, Lucas said: “A man might move from the East Coast to pick up some land on the West Coast but he has done nothing. All he has done is change location. I don’t find he should be given an incentive for moving from the East Coast to the West Coast.”
On the question of tax incentives, the Tax Reform Committee set up by the government had said in a report earlier this year that these should be underpinned by clear and rational criteria via tax laws which must include provisions for a review and the clawing back of incentives where conditions are not met. This, the committee said, will limit ministerial discretion to the absolute minimum. There should also be an annual statement of tax expenditures and revenues forgone.
