Law to be amended for Queens tax breaks

Law to be amended for Queens tax breaks
Stabroek News news item. Monday 16 June 2008
http://www.stabroeknews.com/?p=14841

Government will now have to amend the Fiscal Enactments (Amendment) Act 2003 to legitimize the planned tax concessions to Queens Atlantic Investment Inc (QAII) for its textiles and antibiotics project.

This was announced yesterday in a statement by the Ministry of Finance a week after it was pointed out in the Sunday Stabroek by Business Page Columnist Christopher Ram that the two projects did not qualify for tax concessions under the Act’s definition of pioneering industries.


President Bharrat JagdeoAt the launching of the Guyana Times – one of the QA11 projects at the former Sanata Textiles complex – President Bharrat Jagdeo had berated private sector businessman Yesu Persaud for asking that the tax concessions granted to the investors be accorded to others. The President told the June 5 launching that Persaud’s comment had exposed his ignorance of the tax laws. The President went on to say that the concessions were bestowed on the basis of their pioneering industry status.

Ram in his Business Page column three days later however pointed out that the President was incorrect as the Income Tax (In Aid of Industry) Act described pioneering industries as non-traditional agro-processing, information and communications technology, petroleum exploration, mineral exploration and tourist hotels but not textiles and antibiotics.

When asked by Stabroek News about this last week, Head of the Privatisation Unit, Winston Brassington declined comment. Finance Minister Ashni Singh could not be reached on this point despite numerous attempts.

On the fourth page of its statement yesterday entitled `Government comments on the Sanata privatization and tax concessions’, the ministry said “On closer examination, the current Fiscal Enactments (Amendment) Act 2003 does not reflect Government’s intent when the said Bill was laid in Parliament. In this respect, Government will be moving to amend the law to clearly provide for all pioneering projects, infrastructure projects, and correct the list of regions eligible for tax holidays.”

It added that the rules in respect of taxes have been amended over the last five years to minimize discretion and to move towards a tax system based on principles and rules in law.

“When concessions are granted they must be in accordance with the law and are not discretionary. Indeed, it is because of this openness that persons can point out when matters appear to be inconsistent with policy and law”, the statement said.

It noted the various public statements that had been issued on the QAII deal and argued that the overall principle that guides the government is that tax concessions are not discretionary but based on rules.

Noting that the tax concessions were announced by Head of Go-Invest Geoffrey DaSilva on May 19 at a press conference, the ministry said that the tax holidays have not yet been granted to QAII by “the GRA (Guyana Revenue Authority) and the Minister of Finance”.

The statement then recounted the history of the laws governing tax holidays. It noted that tax holidays were reintroduced in 1998 giving the subject minister the discretion to grant concessions whereas the amendment to the relevant Act in 2003 defined the specific circumstances under which the minister could accord concessions and set out which sectors could be considered pioneering. It also cited the Explanatory Memorandum of the 2003 bill which said that the amendments limited the corporate tax exemptions to new firms that create new employment in depressed regions and firms that undertake economic activity in specified fields.

“It has always been, and continues to be, Government’s intention to treat with pioneer industries that create employment regardless of location, and large investments in identified regions regardless of the sector of investment. The current articulation in the law is not exhaustive with respect to the policy areas that the Government is seeking to encourage investment and employment via tax holidays.

“Government considers that the two Sanata projects earmarked for tax holidays deserve to be granted tax holidays as these activities are currently not performed in Guyana and represent new pioneer projects of a developmental and risk taking nature with employment and investment benefits to Guyana. These projects will see the establishment of significant value-added manufacturing operations in Guyana, specifically in the areas of denim textile production and antibiotic manufacturing, and include a joint venture with international partners”, the statement added.

It then listed a number of deficiencies in the Act and said “While the law sought to make this specific in terms of geography and sector, on both scores the law contains omissions and inaccuracies, and the lists articulated in the Act should have been illustrative and not exhaustive.

“Additionally, the current wording in the law does not provide for tax holidays for infrastructure projects (eg. the Berbice Bridge tax concessions which had to be provided for via special legislation, and the upcoming Amaila Falls Hydro project which would also very likely require concessions similar to the Berbice Bridge).”

The statement further contended that the government has been open on its policies in respect of privatization and taxation and noted that President Jagdeo has called on the Privatisation Unit to host a tax workshop on all privatizations. This workshop is now scheduled for July 9, the statement said.

Ram in his column had said he hoped to be invited to the seminar and recommended that members of the Cabinet, the President’s advisers and investor friends also be invited.

The columnist had also pointed out that under the Financial Administration and Audit Act, the authority for the issuing of the concession was expressly delineated. He said that the Finance Minister had an obligation to tell the nation whether any Cabinet paper had been submitted under his name recommending the concessions and quantifying the cost to the country.

This was not addressed in yesterday’s statement. Ram had said that “If there was no such paper it would be a serious indictment of the President, the Minister and the entire cabinet”. The tax concession was the latest in several controversies over the Sanata deal. Critics have previously questioned how the government and the Ramroop Group initiated direct talks without an advertisement inviting business proposals for the Sanata site.

The cost of the 99-year lease to Sanata and the general granting of concessions were also raised.
In addition, the friendship between President Jagdeo and one of the principals of the Ramroop Group has raised concerns over its impact on the subsequent decision-making.