Concessions should be capped

May 22, 2018 Features / Columnists, Peeping Tom

The government’s job is to encourage foreign investment. But in so doing, it cannot so bend over too far backwards to the extent that it leaves itself exposed.
Foreign companies operating in Guyana are here for one purpose and one purpose only, and that is to make money, big money. Whatever else these companies may do, is intended to contribute to this objective.
Foreign companies naturally want to ensure that they enjoy a comfort. This is why they try to gain favour with the country and its people by providing sponsorship to sport, doing some social work and helping the country in some way. In marketing, it is called corporate social responsibility.
Guyanese must not allow themselves to be sidetracked by these gestures of goodwill. Guyanese must examine carefully, the operations of these companies, lest they rape us in the name of romance.
The government has the most important role to play in safeguarding us from exploitation. The government, by virtue of its position, interfaces with these foreign companies, and therefore is the one which can take action to ensure that the country and indeed even the companies’ shareholders are not ripped off.
In granting fiscal concessions to companies there are three things which should concern the government. The first is that it should estimate the level of investment that is being brought to the country. This level of investment should dictate the value of fiscal concessions.
Governments unfortunately have been allowing foreign companies free licence to jerk out whatever numbers they wish. Some years ago, Guyana was told that US$1B was going to be invested in a smelter. Guyanese are still waiting.
When we hear about how many billions of dollars were invested prior to operation by foreign companies, the logical question to ask is how much the company is going to take out of Guyana to cover this expenditure.
No company is going to invest one billion dollars to break even. Therefore, the first step of the government is to look at the projected production numbers and realistically question what level of investment is required.
This allows the government to be able to cap its concessions, including taking into consideration royalties and employment. Is this being done? It is doubtful. Most large scale foreign companies operating in the extractive sectors have open-ended fiscal concessions, very generous ones too.
The second danger to which government must be alert is transfer pricing. This is an old trick of multinational corporations, and it is disappointing that the government of Guyana has not taken steps to plug this loophole.
What happens is that foreign companies disguise the movement of profits by inflating the prices of goods and services which they procure from the parent of related companies. So that if a radio set costs $10, they will pay $100 for the item as a means of hiding their profits or transferring costs from a related company to a particular operation.
The prices quoted for some of the items imported by some foreign companies operating in Guyana should raise serious red flags within the Guyana Revenue Authority. These inflated prices could be a way of transfer pricing by these companies, inflating their costs so as to avoid taxation and also to rob their own shareholders.
The third danger is the use of contractors from outside the company and outside of the investing country. Many foreign companies have taken to hiring contractors from outside of Guyana to do work. In this way, they are dodging local content obligations and handing work, which can be done locally, to other foreign firms.
But this measure can also be exploited to gain additional concessions from the government. You see, it is not only the principal company which usually enjoys concessions but also their contractors. One way of expanding the value of their concessions and at the same time removing it off their books, is to bring in a sub-contractor who would be eligible for fiscal concessions similar to that of the parent company.
It is not just the pensions of former Presidents which need to be capped; it is also the concessions granted to multinational corporations operating in Guyana. Tax evasion and avoidance can take the form of transfer pricing and the country has to be alert to this possibility. There must also be insistence on local content.

Discover more from Kaieteur News

Subscribe to get the latest posts sent to your email.

Latest News