‘Tax reliefs in budget are for the rich’

Jan 31, 2022 News

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…Economist urges direct cash transfers from NRF to help ordinary citizens

Kaieteur News – The tax reduction measures announced in this year’s budget will not benefit the ordinary citizens of this country and government instead should focus on ensuring that Guyanese benefit directly from the proceeds of the oil resources, Professor of Economics, Tarron Khemraj said.
Khemraj was among panelists of the Moray House Trust discussion on Guyana’s Natural Resource Fund (NRF) Act, a virtual consultation held on Saturday. In his presentation, Khemraj, a Professor of Economics and International Studies at the new College of Florida said, “It’s an interesting Budget. It has certainly, bright spots, but the most worrying spot of the 2022 Budget is how much it mollycoddles people who are already well off”.

He reasoned that the Vice President, Bharrat Jagdeo recently said that he came up with an estimate that local content law alone will provide the business community with over US$600 million a year, but even with local content and the “wonderful tax breaks” Khemraj said he does not see the rationale. For example, in this year’s Budget, government has announced measures to reduce the excise tax on double cab pick-up vehicles between 2000 and 3000 cc from 110 percent to 75 percent. A similar reduction is expected to benefit other vehicles servicing the oil and gas sector as well as cater to the increased construction activities.
To this end, the Economist warned, “I don’t see the good planning there and of course if you reduce the price of some of these vehicles and you make it too easy, you could have the Trinidad situation where one family now has three vehicles and so what you have, you are building roads to take care of the traffic congestion and then you are right back there in two to three years so sustainability has to be a lot more holistic”.
Khemraj’s views were shared by Mike McCormack, Founder and Co-Chair of the Guyana Human Rights Association. McCormack told the forum that Guyana can benefit more from its oil and gas operations through a sound taxation policy. “The loss of value can be addressed by a sound taxation policy. The extractive sector in Guyana, in terms of taxes, things are moving in the wrong direction. The recent budget reduced the taxes on luxury vehicles, four wheel double cab drive, which is used in the mining sector more than any other else. The tax rate on gold mining is two percent…but if you took a realistic approach to taxation the government could not justify raiding this fund to the extent, and raiding is the correct word,” the human rights activist contended.

In this regard, McCormack said it is his view that every citizen should receive a dividend from the Natural Resource Fund, the account which holds the revenue garnered from oil and gas production. He explained that the Fund should be developed in such a way that a portion generated is set aside to benefit Guyanese. In addition, McCormack said that the Fund should be taxable, which would therefore benefit the government.
In fact, he posited, “That would be a legitimate form of revenue to the government rather than sort of legalize looting which is envisaged in the current act”.
In further defending his suggestion, the activist noted that a direct payment to citizens is an option that was utilised by Botswana and is currently in operation in Alaska as well.
“This money belongs to people and people are being denied the benefits of this use of natural resources,” he concluded. Economist Khemraj while weighing in on the matter explained that given Guyana’s returns from the oil and gas sector, such an initiative would “definitely be possible”. This option, according to him, would also ensure that “people on the ground” also benefit.
“It is definitely possible because given the numbers, it’s something that is worth discussing…if the Funds are invested, which it will be, according to the law, you can expect a fair amount of capital gains over a 10 year period. It is highly unlikely, although not zero probability, but highly unlikely, you would have a good return (of) four or five percent with index funds,” he pointed out.
While in Opposition, the then Leader of the People’s Progressive Party, Bharrat Jagdeo, had stated that his party was keeping an “open mind” on the issue of cash transfers from the oil and gas sector. “[Clive Thomas] suggested that the implicating could be done almost immediately. We had to look at the number… and pointed out that it [was] unrealistic. The US$5,000 per household would cost us in excess of US$1.5 B per year, and we were only going to collect, at maximum or so US$300M per year for the first four years. You can’t distribute per year, US$1.1B if you’re only collecting US$300M. That three times more that the amount,” Jagdeo explained.
However, Guyana began producing oil since late 2019, and last year, some US$607 million was sitting in the oil account and with oil production levels expected to increase within a few months’ time, Guyana’s earning will increase significantly.

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