THE PPP AND BIG BUSINESS

Jul 31, 2014 Features / Columnists, Peeping Tom

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I do not think it would be fair to ask the Guyana Office for Investment (GOINVEST) to monitor and assess the benefits that are accrued as a result of the incentives and concessions that are given to investors in Guyana. That would unduly burden the trade and investment facilitation office and take away from its core responsibility to facilitate the establishment and expansion of business activity.
Such a task is better suited to economists within the Ministry of Finance. But why undertake individual studies of each investment that is offered incentives and concessions?
It would be more advisable to ensure that the incentives and concessions offered serve the purposes for which they were intended to serve. And it would better to do this sort of study at a broad rather than at an individual level. It would be too onerous a burden on the country’s limited resources to have studies done on every investment.
A better approach would be for the incentives and concessions available in specific sectors and for particular industries to be assessed to see the extent to which these are serving the purposes intended. Thus for example, in the gold mining sector, are the incentives and concessions stimulating gold production? Are they forcing miners to become more competitive? Or are they subsidizing the cost of production? What about the social and environmental costs? Will these be factored into any assessment that is done?
In the case of the hospitality sector, are the concessions promoting the industry in terms of increasing tourist arrivals and reducing product costs? Or is it a financial handout to those involved in the sector.
In the case of remigrants, are the incentives and concessions being used to attract skilled Guyanese back home? Or are they being used by the rich in Guyana for tax avoidance purposes?
This is the sort of broad- based analysis that needs to be undertaken so that there is a basis upon which to undertake reforms. The same incentives that were necessary at one time in an economy cannot be the same incentives years later when the economy would have been at another stage of development. Yet the PPP has failed to undertake any serious reform of its tax concessions
I do not believe that there exist in Guyana the requisite skills to undertake these broad-based assessments. If GOINVEST had to pay someone to do that sort of analysis, it would have been broke by now.
What is therefore needed is for the government to seek international assistance to have this sort of study undertaken, a study as to whether there needs to be a revision of the incentives and concessions offered in the various sectors.
Tax holidays are a form of economic incentives.  In the case of tax holidays, this is not offered carte blanche but is doled out to what is considered deserving cases. If for example a business was granted a tax holiday on the basis that it will eventually employ 1200 persons, should its tax holiday be revised if it does not achieve that level of employment? It should. The problem is that it cannot because these tax holidays are often contractually guaranteed by the government and is not linked to employment or even to production levels.
It is for this very reason that it makes little sense to monitor the extent to which concessions and incentives granted to individual firms are serving the purposes for which they were intended. What happens if it is found that the incentives and concessions offered to a firm are not serving their intended purposes? The concessions cannot be rolled back because they are contractually guaranteed and unhinged to performance and employment benchmarks.
What is needed is for any future tax holidays to be granted in such a way that the concessions are linked to certain benchmarks. If one set of benchmarks are not attained, then the extent of tax holiday is scaled backwards. The problem therefore is in the design of the tax holidays rather than the tax holidays per se.
It is unforgiveable for companies not to have to pay taxes on the basis that they will create a certain number of jobs, yet when they fail to create these jobs, they still enjoy the concessions.
But do not expect that the PPPC will roll back any concessions and incentives given to businesses or to tie such concessions and incentives in the future to performance and employment benchmarks.
The business class is happy with the concessions they are enjoying. And once they are happy the PPP will be happy because the PPPC is controlled by big businesses in Guyana and as one famous man once said, the ruling ideas are the ideas of the ruling class.

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