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VAT, other exemptions for foreign companies in oil sector discriminatory to locals – Guyana urged to review fiscal law, contracts – Chatham House advisor
By Kiana Wilburg
The Production Sharing Agreement (PSA) Guyana has with ExxonMobil’s subsidiary, Esso Exploration and Production Guyana Limited (EEPGL), and its two international partners, Hess Corporation and China’s CNOOC/NEXEN, allows for all of its foreign subcontractors to enjoy a range of tax exemptions. These subcontractors are exempt from Value Added Tax (VAT) and import duties on all equipment and supplies.
Anthony Paul
In fact, the only tax that these foreign subcontractors are required to pay is Excise Tax on fuel imports at a rate of 10 percent; meanwhile, locals have to pay 50 percent.
Taking the aforementioned into account, Local Content Expert, Anthony Paul said that such exemptions for foreign subcontractors can only be viewed as discriminatory to locals and should be addressed, whether by law or the review of contracts.
Paul emphatically outlined same in a report that he wrote on the request of the United Nations Development Programme (UNDP). That international organization had commissioned this report for the Government and it was handed over in 2016. In that document, Paul stressed that such exemptions could actually undermine Guyana’s local content efforts.
But the Chatham House Advisor noted that the unlevel playing field of exemptions for locals and foreigners is not the only tax issue that needs to be addressed. In fact, Paul said that Guyana needs to urgently review its tax legislation before first oil comes on stream.
In this regard, Paul said that there are a number of issues which Guyana needs to address, such as closing loopholes that allow for tax avoidance, transfer pricing, capital gains tax not being applied, and companies not disclosing their payments to the government.
The Local Content Expert also recommended that the concessions which are granted to the oil sector, be reviewed to ensure that Guyana is not giving away more than it should. Paul suggested that a special Negotiating Task Force be established to handle that particular issue.
He also cautioned that oil companies often engage local accounting firms to help them find the country’s fiscal loopholes. He said that to safeguard itself, Guyana would be wise to consider doing same, that is to say, hiring the right firms to help identify and plug the foregoing loopholes, among others, which can be used to keep significant revenue away from the national purse.
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