Appoint GRA as single collecting agency for royalty, petroleum tax revenue-IMF

Jan 21, 2018 News

The International Monetary Fund (IMF) believes that the Government of Guyana should appoint the Guyana Revenue Authority (GRA) as the single collecting agency for royalty and petroleum tax revenue. But as it prepares to get to that stage, the Fund says that there will continue to be great need to build capacity in the petroleum tax administration systems of the revenue authority.
In its Technical Assistance Report on Petroleum Taxation and Revenue Management, the IMF noted that at present, two ministries are responsible for administrating petroleum revenues. The Fund said that according to the Production Sharing Agreement, the Minister responsible for petroleum is administering the petroleum agreement while the GRA is responsible for general tax administration.
The Fund stated that fragmented organisational arrangements for the administration of petroleum revenues could create some challenges that must be addressed. It said that in order to establish an efficient and effective administration of petroleum revenues, close cooperation between the different government agencies is required.
Additionally, the Fund said that the exploration, development and production phases of petroleum extraction constitute potential risks for the revenue administration. The Fund stated that very large investments are made up front in the exploration and development phase before the government may collect direct revenues from the production phase.
The IMF said that the exploration and development phase will typically cover a time span of five or more years and expenditures incurred during this period will be deductible against future income. Therefore, the Fund said that tax administration needs to start monitoring and auditing costs from the start of the exploration and development phases.
The Fund said, “The transition from the exploration phase to the development phase is a particular challenge for a tax administration with no petroleum experience. The development expenses are extremely large compared to any industrial investment, especially in a small country like Guyana, typically on goods and services of a much specialised nature and concentrated in a short period.”
It continued, “For example, ExxonMobil estimates that the cost to develop phase one of the Liza field to start production in 2020 is likely to be around $4.4B. Development expenditures represent costs of a different nature than the expenditure in the exploration phase and a large inflow of new international sub-contractors will enter the country during this phase.”
The Fund added, “It can be difficult for the tax administration to scale up the capacity to meet this challenge since this is not primarily a matter of the number of staff but more the particular skills necessary for the petroleum sector. “Moreover, oil companies may also compete with the tax administration for experts with the same professional skills such as accountants, auditors, economists, lawyers etc during the development phase.”

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