Tax credit remains viable option than oil and gas tax giveaways

Mar 18, 2022 News

---

By Zena Henry

Kaieteur News – Tax Credit remains a viable option when dealing with operators in Guyana’s oil and gas sector instead of the tax exemptions that are causing the country to lose billions of dollars in the scenario involving oil major, ExxonMobil and its subsidiaries.

As it stands, Guyana has lost some $137B in foregone revenues for the year 2020 alone; a sum the Guyana Revenue Authority (GRA) says represents 62.75 percent of total monies collected by the Authority for that period.
Economist, Ramon Gaskin is adamant therefore that Guyana must review its tax provisions to prevent this sum from being significantly more given future oil production development. Gaskin told the newspaper that, “tax credits are very much viable as opposed to tax exemptions since the taxes to be paid would be deducted from taxes owed.” Gaskin explained that whereas the tax credit would allow Guyana to actually receive payments, it would also benefit the company paying since they would not have to pay the total taxes owed based on credit incurred.
Tax credit, by economic definition, is an amount of money that taxpayers subtract directly from the taxes they owe. It was explained that unlike tax deductions, which lowers the amount of taxable income, tax credits reduce the actual amount of tax owed. The tax credit mechanism was further described as a dollar for dollar reduction of the income tax owed, and to be calculated based on the agreements made between a company and the relevant tax agency. The agreement would determine how the company receives credit based on its operations. This credit, given a dollar value, is then deducted from the amount of taxes owed.
Gaskin told Kaieteur News that where the exemptions are concerned as in the case of Guyana, ExxonMobil and its subsidiaries, Hess Corporation and CNOOC Petroleum Guyana Limited, the oil companies receive the tax break upfront.
“These tax breaks, these giveaways, they are upfront. They (oil companies) are getting these exemptions before they even make a profit.” The economist, like many other observers, has expressed concerns as to why the Government of Guyana would sign a “sweetheart” deal that causes Guyana to get less than what is due. He said that the oil companies have been given the option of not paying taxes even if a profit is made by the oil company, “so whether they make a profit or not, they (oil company) have no taxes to pay.”
Gaskin said that providing tax credit to foreign companies is a method used by big countries around the world and suggested that moves should be made to correct the current situation.
Contrary to Guyana’s Petroleum Law, the current oil contract between Guyana and Exxon states that “…no tax, value-added tax, excise tax, duty, fee, charge or other impost shall be levied at the date hereof or from time to time thereafter on the Contractor or Affiliated Companies, in respect of income derived from Petroleum Operations or in respect of any property held, transactions undertaken or activities performed for any purpose authorised or contemplated hereunder…”

Specific to income tax, it is agreed between Guyana and Exxon that, “ (a) a sum equivalent to the tax assessed, pursuant to Article 15.2 and 15.3, will be paid by the Minister to the Commissioner General, Guyana Revenue Authority (GRA) on behalf of the Contractor and that the amount of each sum will be considered income of the Contractor; and (b) that the appropriate portion of the Government’s share of Profit Oil delivered in accordance with the provisions of this Agreement shall be accepted by the Minister as payment in full by the Contractor of Contractor’s share of each of the following levies, whatsoever the applicable rate of such levies may be, which the Minister shall then pay on behalf of the Contractor under Article 15.4 (a) to the Commissioner General, Guyana Revenue Authority or such successor authority.”
It says further that the Contractor’s share of the income taxes imposed by the laws of Guyana, including, but not limited to, income tax imposed by the income Tax Act and corporation tax imposed by the Corporation Tax Act and payable at the date hereof, or from time to time thereafter, and any other levy or charge on income or profits which may become payable from time to time under any laws, acts, statutes, regulation or orders by the Government or any other similar charge imposed and payable in respect of Petroleum Operations at the date hereof, or from time to time hereafter except charges of the type specified in Article 15.1 (a-b) returns to be submitted by the Minister to the Commissioner General, at Guyana Revenue Authority so the Minister can pay income tax on behalf of the Contractor as provided under Article 15.4 (a).
On such returns, the Minister will note that he paid the income taxes on behalf of Exxon, so that the Commissioner General at GRA could properly prepare the receipts required under the Article. The Minister will also furnish Exxon with proper tax certificates in its name as evidence of the payment made.
Although Exxon is not obligated to make the mentioned tax payments to Guyana, it should be noted that under US law, US-based companies like ExxonMobil and Hess must file tax returns. The bonus however is that taxes paid to Guyana, by Guyana on behalf of Exxon are deductible under the U.S. tax code. In the Auditor General’s report, GRA Commissioner General, Godfrey Statia said that significant increase in exemptions is expected in the coming years owing to the burgeoning Oil and Gas sector, and unless policy changes are effected, exemptions are expected to grow exponentially as the industry develops and matures, and in particular, if the Production Sharing Agreements (PSAs) for other blocks have similar provisions for (tax) exemptions.
The Commissioner in the report stated his preference for the removal of the concession regime and having it replaced with a system of tax credits, as practiced in the developed nations, thereby allowing for improved compliance with the tax laws and the terms of Investment Development Agreements (IDAs).

---

---