Accountability Watch welcomes last Thursday’s release of the agreement between ExxonMobil’s subsidiaries and the Government of Guyana, notwithstanding that it was not a voluntary act on the latter’s part. It is somewhat of a relief that those who fought for the release of the agreement and more generally for speaking out on matters of governance, transparency and accountability, have so far not been singled out for personal attacks, vilification and character assassination. This is in stark contrast to what prevailed in the past where public resources were used to carry out State-sponsored and centrally directed attacks on individuals and organisations, including this columnist. Be that as it may, given the long-term implications, it is regrettable that the draft agreement was not subject to some form of public consultation so that constructive comments and suggestions could have been made and reflected on by the Government before the final agreement was crafted. Considering that the natural resources of a country belong to all its citizens, Guyanese must all have a say either directly or through their elected representatives as well as through civil society groups, on how and under what circumstances these resources are to be exploited for the benefit of all. There are important lessons to be drawn from this experience.
A clarification is necessary on the signing bonus of US$18 million received from ExxonMobil and placed in a special account. Article 216 of the Constitution is clear on the matter. All revenues or other public moneys raised or received by Guyana shall be paid into and form one Consolidated Fund. The only exception relates to revenues or other moneys that are payable, by or under an Act of Parliament, into some other fund established for any specific purpose or that may, by or under such an Act, be retained by the authority that received them for the purpose of defraying expenses of that authority. We made it clear that since no fund was established under an Act of Parliament to accommodate this payment, the money should be paid over to the Consolidated Fund. We did not defend the Government’s action, nor did we accept the explanations proffered.
The situation is quite unlike that of the Guyana Geology and Mines Commission, the Guyana Forestry Commission, the Central Housing and Planning Authority, or the National Frequency Management Unit, all of which are the subject of specific legislations that outline the circumstances under which revenues can be retained and to what extent portions thereof can be paid over to the Consolidated Fund. The Lotto Account is, however, not covered by any specific legislation despite a suggestion to the contrary. The Government Lotteries Act of 1963 governed the operations of then National Radio Bingo, and it was necessary to retain the proceeds to meet the cost of prizes as well as operational expenses. Any surplus was required to be paid into the Development Fund established by the Act. However, any deficit had to be made good from the Consolidated Fund.
The current lottery is a completely different arrangement where the Government is not involved. Rather, a licence has been given to the Canadian Bank Note, a private company, to operate a lottery. In exchange, the Government receives 24% of the gross proceeds. It is in effect a licence fee, and there are no expenses involved. In the circumstances, the Lotto proceeds must be paid into the Consolidated Fund. In its 2000-2001 report, the Public Accounts Committee endorsed this view when it stated that “This practice, apart from being a breach of Section 17 of the FAA Act as well as a usurpation of Parliamentary authority to incur expenditure, can and probably does lead to irregularities”.
We did mention that if the Government insists on not placing the signing bonus into the Consolidated Fund, regardless of how justifiable the reason may be, it must first create an Extra-Budgetary (XB) Fund, provided for under Section 39 of the Fiscal Management and Accountability Act. Since no such fund has been established, the retention of the money outside of the Consolidated Fund remains a constitutional violation. Upon reflection, we did advise against the creation of an XB fund because of our checkered history relating to the timely financial reporting and auditing of similar funds as well as the scrutiny from the National Assembly. Suffice it to state that placing the signing bonus in the Consolidated Fund would enable Parliament, not the Executive, to decide on how it is to be used. The President did indicate that once he is advised that there has been a violation, he would take corrective action. We eagerly await the outcome of the legal advice to him.
Recently, two reports from the International Monetary Fund (IMF) featured prominently in the print media. The first was an assessment of the operations of the Guyana Revenue Authority (GRA), which assessment painted a sorrowful picture of the state of affairs of the Authority that the present Administration inherited. The other report, entitled “Guyana: A Reform Agenda for Petroleum Taxation and Revenue Management”, was commissioned by the Minister of Finance in the light of discovery of large quantities of high quality oil and gas off the shores of Guyana. These reports are not available online and we therefore rely on disclosures in the print media in compiling the rest of this article.
IMF Report on GRA
Several weaknesses and deficiencies were identified in the verification of returns filed by taxpayers. There was no automated cross-checking of internal and external information to detect and deter inaccurate reporting; no proactive initiatives to encourage accurate reporting; and no monitoring of the extent of inaccurate reporting in any of the core taxes. In addition, GRA’s Customs Department was not used on a systematic basis to verify amounts reported for personal and corporate taxes. The need to monitor regularly tax revenue losses from inaccurate reporting was also highlighted, especially by business taxpayers, so that the necessary actions can be taken to ensure compliance. Accordingly, the IMF gave a D grade for this activity which is considered the lowest level of performance.
There was no system of public or private rulings nor were cooperative compliance arrangements in place to facilitate GRA’s clarification of tax issues. There was also no legal framework to support the issuance of binding rulings nor were there any compliance gap studies for Value Added Tax (VAT).
GRA’s audit programme was decentralised and did not include a range of audit types and audit methodologies. Although it covered all core taxes, it was also not weighted towards large taxpayers. In addition, the audit manual, reportedly updated more than 20 years ago, was not made available to the auditors and was not used to set or monitor performance standards. Except for self-employed persons, audit cases were not selected centrally nor were they based on any risk assessments carried out. There has also been no evaluation of the impact of audits on levels of taxpayer compliance.
This Column is on record as having stated that GRA has the potential of doubling its assessment and collection of revenue from the various taxes that it administers. One area that it needs to pay particular attention to is in relation to the conduct of arbitrary assessments, also called lifestyle audits, where there appears to be a significant mismatch between the reported income of individuals and their observable lifestyles. Suffice it to state that too many of these persons continue to flaunt unexplained wealth with impunity. There are also many large unincorporated entities for which there is no legal requirement to file audited accounts with the GRA. This poses significant difficulties when considering the tax liabilities of the owners these entities.
On the other hand, while there is a requirement for incorporated entities to file audited accounts with GRA within a specified timeframe, duly certified by chartered accountants in public practice, GRA must be more proactive in carrying out its own independent assessment as to whether these audited accounts do indeed reflect a fair presentation of the financial condition, performance and cash flows of these entities. In other words, GRA must be prepared to challenge these accounts rather than accepting them at face value simply because they have been certified by chartered accountants. In his address to the 35th Conference of Caribbean Chartered Accountants in June last year, the Minister of Finance disclosed that Guyana’s first Money Laundering/Terrorist Financing National Risk Assessment has found that the accountancy profession carries a high risk for money laundering.
According to GRA’s Public Relations Unit, the Commissioner General re-iterated on numerous occasions “the inherited sorry state of the GRA, foremost being bribery, collusion and corruption, the lack of proper IT systems, infrastructure and training. He has repeatedly stated that it may take as much as five years to meet international standards…”
Petroleum taxation and revenue management
Some of the key findings contained in the IMF report referred to above are:
(a) The government faces significant challenges in preparing for the start of oil production, given its limited experience and expertise in dealing with petroleum matters;
(b) The agreement with ExxonMobil is weighted generously in favour of the U.S. oil giant, especially as regards the rate of royalty, ‘ring-fencing’ of costs, taxation, and profit-sharing;
(c) There are too many loopholes in the agreement, if not plugged, could result in Guyana losing significant amounts of revenue;
(d) A roadmap of reforms and changes is necessary between now and the start of production of oil; and
(e) Several concerns were highlighted in relation to the Petroleum Commission Bill now before a select committee of the National Assembly; and
(f) Going forward, strong leadership in government is needed to ensure that the interest of the State is properly safeguarded.
The report noted that the Petroleum Commission Bill sets up a regulatory body for the petroleum sector and outlines the functions and duties of the Commission, including monitoring and regulating the exploration, development and production of petroleum in Guyana. The Commission’s core responsibilities are technical in nature, and encompass monitoring and ensuring compliance with national policies, laws and agreements as well as with health, safety and environmental standards, among others.
The Bill, however, grants revenue collection and fiscal powers to the Commission. According to the report, this would result in a fragmenting tax policy and overlapping revenue administration of the sector. The IMF concluded that if the intention is to have GRA as the single revenue collection agency for the petroleum sector, the Bill should be amended to make it clear that the proposed Commission should only be responsible for regulating all non-fiscal aspects of the petroleum sector. Meanwhile, GRA should continue to build capacity in petroleum tax administration.
Next week, we will begin a detailed examination of the Petroleum Commission Bill as well as the agreement with ExxonMobil, especially in the light of the concerns raised by the IMF.