How BaiShanLin and other Asian timber log traders robbed Guyana billions of dollars in taxes

Sep 18, 2016 News

By Kiana Wilburg
Forest specialists, John Palmer and Janette Bulkan, have found a worrying case where Chinese transnational logging company, BaiShanLin Forest Development Inc. and other Asian traders of timber logs have robbed, and are robbing Guyana of billions of dollars in plain sight.
According to Palmer, Customs law in Guyana requires the declaration of who is exporting what, to whom and where. It also requires of exporters to state the quantities and quality of what they are shipping as well as what the fair market price is.
The duo said that these are requirements in international Customs laws and in the Customs law of Guyana (cap. 82:01, sections 23 (1) (b), 215 (1) and 231 (1)).
They opined that brokers who act for exporters must also follow the rules. Captains of ships carrying the exports are likewise liable if they are found making false declarations under sections 157 and 158 of the nation’s laws.
It is important to note that false Customs declarations facilitate transfer pricing in the timber log trade, as has been pointed out by Janette Bulkan in the independent Press, for almost a decade.
Based on their investigations, the forest experts found that Bai Shan Lin, using its own name and false names of exporters, had a much larger profit margin in Guyana than they were declaring. They found that the Chinese company was making false declarations in the FOB (Freight On Board) price it declared to the Guyana Forestry Commission (GFC) and to the Guyana Revenue Authority (GRA) Customs and Trade Administration.
He told Kaieteur News that Bai Shan Lin under-declared the FOB value as well as falsified the volume/value ratios for the containerized timber and thus paid less than the correct export commission per cubic metre.
He said that this is usually set as a percentage of the Free-On-Board; that 17 percent in the case of wamara.
Palmer asserted that the super-profit made by the controversial logging company should also be reflected in the audited accounts submitted for taxation by the GRA.
The forest expert said that the undeclared super-profit which has not been included in the declared FOB value is the transfer price, presumably paid into some secret tax haven.
He said, “We do not know how much of the super-profit has been paid as bribes in Guyana.”
To put real figures to this troubling scenario Palmer said that production and export data recorded by the Guyana Forestry Commission for wamara – a dark-coloured impact-resistant timber favoured for luxury flooring in China – were over 100,000 m3 in 2014, with 82,000 m3 exported.
He said he was able to confirm that the profit made was US$200 per cubic metre.
The forest expert said that the declared FOB value for wamara logs logging companies was and still is in the range US$160 to $220 per m3, according to the Forest Products Development and Marketing Council, a subsidiary of the GFC.
Palmer said that the estimated CIF value ( cost, insurance and freight) for delivery to a Chinese port is less than US$250/m3, using GMSA figures for containerized freight.
However, for China Customs records , Palmer said that the declared FOB CIF value for wamara timber logs from Guyana was in the range US$ 700 to $1000+ per m3 during 2015.
“How do we explain the difference between US$ 250 and US$ 700-US$1000+ as the CIF value of wamara logs delivered to a Chinese port, bearing in mind that China Customs are strict about accurate declarations by importers?”
“Clearly there was no processing of the logs while they were in transit in the shipping containers, so no value was being added in transit.”
Spelling out the implications of these estimates, Palmer said, “82,000 m3 of wamara logs x excess profit of US$ 500/m3 x 17% GFC log export commission = G$1394 million (US$ 6.97 million) as uncaptured Government revenue for wamara alone in 2014`.”
“Similar estimations can be made for the log export of other high-value timbers such as purple heart by the Malaysian-owned Barama Company Limited. Even more extraordinarily, Bai Shan Lin and Barama and indeed most, possibly all, of the holders of large-scale long-term logging concessions have been allowed by the GFC to build up huge unpaid tax debts, and to carry these debts over from year to year while making fortunes from log exports.”
MAKING THE POLICY WORK
Palmer said that it has been national policy since 1926, to add value to timber in Guyana instead of exporting raw logs for value addition by processing in other countries.
He said that adding value would mean that the consumer pays a very different price for luxury carved furniture made from purple heart or impact-resistant luxury flooring made from wamara, compared to temporary-use sawn wood from kabukalli.
However , Palmer said that making that policy workable means estimating the costs of each stage of processing (each adding some value) in extra skilled staff, training, better equipment, better packaging and marketing, etc., compared with the sale price of the added-value product.
He said that Andrew Mendes of Farfan & Mendes has shown repeatedly that properly sawn and dimensioned timber produces a higher return on investment than the sale of raw logs.
The forest and governance specialist said that more advanced processing, to make decking and mouldings and furniture, costs more but the sale price is correspondingly higher.
For Guyana, Palmer noted that the export sale price of furniture makes the processed timber worth about 14 times more than the sale price of the log volume needed to make the furniture, per cubic metre of log.
He said that Economist Pradeepa Bholanath, at the GFC, has also shown repeatedly that Guyana has installed milling capacity, by volume, to saw all the logs which are produced. He said what that simply means is that is, there is no reason to export logs because Guyana does have enough saws or sawmills.
In order to promote local milling, Palmer believes that Governments conventionally dissuade log exports by imposing taxes on excess profits on unprocessed logs, and stimulate local processing by fiscal incentives for importing good quality wood processing machinery, training and retaining workers, and supporting Guyanese added-value wood products at international trade fairs.
“Bai Shan Lin said that it would invest US$ 70-US$100 million in a wood processing factory and so has been allowed duty-free import on a huge range of machinery and supplies, but no factory has been even started.”
He concluded, “Some of the duty-free imports have been used for purposes not included (apparently) in the original FDI agreement, such as trucks used to compete with local truckers for moving stone from hinterland quarries to the coastland; excavators used in gold mining but not mentioned in the FDI agreement; enormous quantities of cement and steel and paint, some of which has been sold illegally on the domestic market.”