Concessions have to be rolled back

Nov 18, 2016 Features / Columnists, Peeping Tom

The Budget for 2017 has not yet been passed and people are bawling. The Guyana Gold and Diamond Miners Association says it has learnt that concessions offered will be withdrawn. The Ministry of Natural Resources issued a response but has not indicated definitely whether there will be any loss of concessions to the mining sector.
The mining sector has reasons to be peeved if its information is true. The gold mining sector is responsible for the growth in the economy. Were it not for the output from gold mining, the economic would be in recession since most of the other sectors are in serious decline. Gold therefore is responsible for any growth that the Minister of Finance will claim in his Budget presentation.
The mining sector, therefore, has reasons to be concerned. But there is another issue involved. The fact of the matter is that concessions amount to a hidden subsidy for all industries which benefit from concessions.
Concessions also encourage investors to invest. Many of them will not invest unless there are concessions since the start up costs will be prohibitively high. It is never advisable to place concessions on actual production since this distorts production costs making them seem lower than they really are. Concessions on production also stifle attempts at improving efficiency.
The Minister of Finance has his own problems with concessions. They, accumulatively, amount to hefty sums. It would be wrong to see the value of concessions as a case of revenues foregone since there would be no revenues, no investment without the concessions.
But it is always hard for any Minister of Finance to ask workers to take a small wage increase while at the same time having to defend the billions of dollars in tax concessions to businesses.
Ideally the best approach would be for all concessions to be outlawed and for tax rates to be lowered. The government is afraid of making such a bold move. It has been unable to keep, so far, its promise to reduce the VAT.
The public expected the VAT to be slashed by at least six per cent. It makes no sense for the VAT to be reduced by any less percentage because the benefits would not find their way to the public. They would be appropriated by the business class. The government, in fact, would be much better off simply leaving the VAT as it is and offering workers compensation in form of a lower tax rate. A 25% flat tax rate would more than compensate for the failure to reduce VAT.
The government is reliant on tax revenues. Taxes therefore cannot be reduced significantly unless it is clear that either new sources of revenue are available or that the lower tax rates would lead to increased tax collection. None of the two have ever been proven in Guyana.
The only source of increased revenue collection for the government at present is to remove unnecessary concessions. It is not going to be easy pill to swallow for production concessions to be removed. The fishing industry for example needs cheap fuel to be viable.
The mining sector will claim the same because fuel costs are a major component of production costs. However, there is no reason why there should be concessions on spares which attract low rates of duties or on All Terrain Vehicles which attract high rates of duties. Those should be removed. They are abused.
Also abused are duty free concessions for re-migrants. The PNC had a bad experience with such concessions and was forced to rescind them. It is disappointing that given all the fraud that has taken place with these concessions, the APNU+AFC government has not after two national Budgets removed these concessions off the books.
The economy is struggling. The government needs revenues to keep the economy afloat. Concessions will unfortunately have to be scaled back if revenues are to be kept stable. It is unfair for the government to ask workers not to press for increase wages when they have on the books concessions which are being abused primarily by the rich.

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