The new tax regime to be imposed on the gold and diamond mining industry has been deemed a deterrent to investment in the sector. In a report seen by Kaieteur News assessing the impact of the new taxes on the industry, it
was said that the new measures will not increase equity but instead increase costs for producers and operators.
The increase on income from two per cent of gross final tax to 40 per cent, was described as being not only sudden and without either consultation or proposals for phasing in but depending on the scale of operations and profit margins, could be translated into 1500 per cent in the marginal tax rate for operators.
According to the report, the overhead costs for small entities would increase as they would now have to employ auditors, accounting staff and use accounting systems to facilitate proper book keeping.
Further, it was said in the document that when the previous measures were compared to the 2017 budget measures, the new regime is complicated by the fact that the base of taxation has been changed from revenue to net income.
The equilibrium of the sector stands to be affected, the report said. This equilibrium speaks to the number of operators, and production levels among other things. Added to this, the report said that the consequent employment of factors such as labour, capital equipment procurement and a host of other commitments and contracts which have emerged over time under the status quo fiscal regime, the two per cent final income tax being an important component.
In light of this it was suggested that to suddenly change the status quo in a detrimental manner to the sector, will not only disturb the equilibrium and the entire economic arrangements attendant to it, but it is sure to create severe disruptions in the sector.
It was said that the new regime will affect the Risk Adjusted Rate of Return (RARR) for small and medium sized operators. The impact of higher taxes on the RARR increases as profit margins increase for both small and medium scale producers.
The report noted that miners will still have to pay two per cent of gross revenues, but this is no longer a final tax. If this amount is less than what is the actual tax liability miners can apply to the Guyana Revenue Authority (GRA) for a refund, or be assessed the difference if the tax liability is greater.
This tax was described as onerous in the report as it relates to miners with small profit margins since those entities producing at a small scale would be forced to borrow to pay the tax if retained earnings are not available to satisfy the tax liability.
Further stymieing the process is the fact that if the amount due to GRA is less than the two per cent there is no guarantee that the revenue authority will repay the overcharged amount.
Meanwhile, on the issue of the Tributor’s tax, the report said that the previous 10 per cent tax on wages of employees had maintained a balance, allowing miners to employ and retain the ideal number of workers at the input prices that allowed them to earn their required RARR.
However, the withholding of the increased Tributor’s tax rate of 20 per cent from workers’ salaries will serve to disrupt the balance thereby, creating additional problems and costs for employers.
It is predicted that production will decrease when employers attempt to withhold the 20 per cent from employees’ salary and this will have a negative effect on the sector as operators will no longer be able to produce enough to achieve the RARR.
According to the report the implication of these changes will be associated with the closure of operations that are marginal and even those that are infra-marginal. The effects will be felt even further as some operators will be forced out of business, reduced production, lowered government revenue and decreased foreign exchange earnings.
Declarations will also be reduced as miners are predicted to find creative but not necessarily legal ways to meet their obligations for which they have personal liability as sole proprietors. To prevent these occurrences, it was suggested that a meaning alternative would be for the Ministry of Finance to employ a grandfather-type policy whereby the changes are gradually introduced.
These concerns are among the major issues miners are rejecting. For some miners these measures are impractical and not tailored to accommodate the peculiarities of the sector. Miners have since requested a meeting with President David Granger to voice their concerns and hopefully arrive at a consensus.
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