The mining sector…Slapdash royalty/tax system allows for corrupt negotiations – Nagamootoo SEPTEMBER 17, 2014 | BY KNEWS | FILED UNDER NEWS By Kiana Wilburg For years, the investment agreements made between the Ministry of Natural Resources and the Environment and potential investors for the mining sector have been done on a case by case basis. Hence, each agreement is different. AFC Vice Chairman Moses Nagamootoo AFC Vice Chairman Moses Nagamootoo But while this may bring with it various benefits tailored to suit both parties, when it comes to the applying royalty and tax system, some investors are worried about the implications of such a scheme which they believe to be “ad hoc.” They are also of the view that while some local investors are made to “follow the righteous path” and adhere to certain regulations, some foreign companies are being allowed to benefit from “unprincipled” arrangements. The behaviour of the Guyana Revenue Authority (GRA), the Ministry of Natural Resources and the Guyana Geology and Mines Commission (GGMC) has done little to mitigate suspicions of corruption and favouritism. Case in point would be the fact that the aforementioned entities are unable to clearly state whether BOSAI owes Guyana millions in royalties or not. The political opposition has been probing the issue via the Parliamentary Sectoral Committee on Natural Resources for some time, but despite a contractual agreement made with BOSAI, a definitive answer as to whether the company must pay royalties is yet to be established. A Partnership for National Unity had called on the entities to make a pronouncement on this matter as soon as possible and the Chairman of the GGMC board, Clinton Williams had promised several months ago that the matter would have been dealt with within ten days. However, the Ministry and GGMC have been silent on the status of the matter. With this in mind, investors have posited that the “slack” agreement with the company and the fact that it is taking the authorities such a long time to determine whether or not the business should pay royalties, should be more than enough to ensure that the Ministry’s royalty and tax policy be revised. Calls to Williams and Minister Robert Persaud went unanswered yesterday but Rickford Vieira, GGMC’s Commissioner, informed this publication that it is not the role of the Commission to be involved in effecting changes when it comes to royalty and tax policy, but that of the Minister (Robert Persaud). Vice Chairman of the Alliance For Change (AFC), Moses Nagamootoo said that no investment can be considered to be a viable one if there are suspicions that the playing field is not even. He posited that investors need clarity on such royalty and tax policies. The attorney at law said that his party would most definitely speak about this matter for not only do the investors require a rational policy but also the country, so that its citizens are not hoodwinked by the sweetheart deals that would have been negotiated between the government and certain companies. Nagamootoo concluded that the “slapdash manner” in which the royalty and tax system is, allows for corrupt negotiations. Critics have said that it is ironic that government also spoke to the need to address tax and royalty in the National Development Strategy (NDS) but most of the ideas have not left the drawing board. Under the category, Issues and Constraints, the NDS speaks of the need for proper address of investment and the tax system. In terms of a fiscal strategy, the NDS proposed that there will no longer be any special agreements in respect of the mining sector. It said that the fiscal regime should be structured in such a manner that it could be applied to a variety of projects and in a number of circumstances, without wasting time and resources in devising a unique set of arrangements for each project, as is currently the case. Understanding that investment is critical in propelling the economy into the 21st century, the document explained that at the same time investors require competitive terms and conditions, and solid assurances that the investment environment will be stable. The NDS highlighted that Guyana’s current tax structure for the mining sector is not, on the face of it, competitive. It includes charges of five percent royalty on gold, three percent on diamonds, and a thirty-five percent corporate income tax. Both the royalty and the corporate income tax are located in the upper echelons of international norms. With specific reference to tax and royalty, the NDS said that any Government of a mineral-rich developing country, such as Guyana, that is interested in expanding the mineral sector with foreign investor involvement, and that is eager to reap substantial benefits from it while ensuring both technical and economic efficiency in exploitation, should have in place a fiscal regime that satisfies, at least, certain criteria. This includes ensuring that the tax system is so structured that it may be expeditiously applied in a variety of projects and circumstances. It mentioned as well that the process of formulating a unique fiscal regime for each project is not only time-wasting, but often creates confusion. It posited that a standard fiscal regime is one of the most attractive elements of policy to investors. From an investor’s viewpoint, the NDS states that the royalty rate and the free equity provision which have become standards in most mining agreements in Guyana are somewhat controversial. “The royalty rate of 5 percent, which has been pointed out is at the very top of the international scale, also causes special problems in the case of gold, where it encourages leakages of the product across the hinterland borders to neighbouring countries, and other forms of evasion. In this case, a complicating factor is that the borders are quite permeable. Indeed, access to neighbouring countries from some hinterland mining districts is easier than access to Georgetown. Hence in practice the attempt to sustain the royalty rate above that of Brazil’s, for example, results in reduced declarations nationally.” Also of significance is the fact that it noted that investors also contend that royalties, because they are payable whether or not losses are incurred, are in some respects unfair. These fiscal changes recommended by the NDS are yet to be implemented.
Posted on: Wed, 17 Sep 2014 23:17:36 +0000
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