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IMF wants review of Guyana’s mining tax regime
The International Monetary Fund (IMF) has issued a call for a comprehensive review of Guyana’s mining tax regime. The Fund believes that such a review would provide a good basis for introducing a generally applicable fiscal regime for future investment for mining.
In a report to the government, the IMF said that the review could have several features which can be subject to a further assessment. In this regard, the Fund said that the government could consider having artisanal gold miners subject to an escalating royalty plus service and permit fees.
It said that given the prominence of artisanal gold miners in Guyana and the simplicity of the current royalty structure, a mining rent tax should only be considered for larger more sophisticated mines. That said, the Fund opined that at higher gold prices, the government should take a greater share of the profits from all gold producers.
For larger gold mines, the Fund said that the future tax regime should see the retention of a five percent royalty while replacing the escalating royalty with a mining rent tax. According to the Fund, this could allow more revenue to be earned from larger mines with a smaller negative impact on investment.
The Fund said that it would be difficult to make such a large change in the current structure of mining taxation without creating disputes with foreign mining companies in possession of a mining agreement that includes a stability clause.
As a result, the Fund said that the relevant legislation could be amended to clearly specify the tax and royalty treatment of all future mines. The international body stressed that existing mines with a mining agreement that includes a stability clause could be given a one-time irreversible opportunity to opt-in to the new regime.
The Fund said that tariffs should be eliminated on capital goods and other business inputs for all businesses, not just those foreign-owned businesses with the ability to negotiate preferential provisions in a mining agreement.
The Fund said that such a change would greatly simplify the current administrative approach of exemptions and annual Investment Development Agreements, while improving the competitive position of domestic businesses and increasing productivity and economic growth rates more generally.
Further to this, the Fund said that in the case of Value Added Tax (VAT), in lieu of exemptions for foreign-owned businesses, the Guyana Revenue Authority should commit to processing and paying all input tax credit refunds in a timely manner. The Fund said that such a change would allow businesses to quickly clear their importations through the port of entry by paying the VAT up-front, with the confidence that refunds would be expedited.
It is worth exploring the scope to design the VAT policy in ways that reduce the cash flow pressures from mining and petroleum operations (perhaps by applying a reverse charge mechanism or a deeming rule); since their exported supplies are zero-rated there is no revenue at stake (other than ensuring there is no leakage stemming from abusing VAT exemptions).
The Fund also stated that VAT registration should be made available to all mining or petroleum companies with an exploration or production license.
Regardless of whether the business is currently making taxable supplies or whether all future outputs are likely to be zero-rated exports, the Fund noted that the core benefits of a VAT include the non-taxation of business inputs during the exploration and development phase.
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