By Kiana Wilburg
Guyana loses billions of dollars on an annual basis through the granting of tax exemptions.
Hoping to cut these losses significantly, the Guyana Revenue Authority (GRA) has its sight set on implementing a number of measures.
Already, the revenue earning authority has reduced to a great extent, the number of exemptions it had granted for 2017. It is weighing the pros and cons of implementing a system of tax credits as opposed to the usual exemptions which are approved.
The case for tax credits was initially proposed for Guyana by some of the nation’s best tax advisors who were contracted to be part of the Tax Reform Commission in 2015. That Commission included GRA Commissioner General, Godfrey Statia; Chartered Accountant, Christopher Ram; and Economist Dr. Maurice Odle.
In the report which was prepared by the Commission, Tax credits are noted to be a type of incentive, which allows certain taxpayers to subtract the amount of the credit from the total taxes owed, and when appropriately used, it encourages investment and compliance.
Unlike upfront incentives, which are hard to police, tax credits are only given on submission of the proof of the actual activity, and hence forces the taxpayer to comply in order to so benefit.
The Commission said, “For instance, instead of granting exemptions upfront to gold miners, an efficient tax credit regime will allow for such a credit to be granted when gold is sold to the Board.”
The Commissioners believe that this will not only encourage compliance but will reduce smuggling and sale of the exempted fuel, thereby minimizing the probability that these persons are unjustly enriched at the benefit of the state.
The Commission stressed that the current methods for granting and verifying tax exemptions consequently needs to be reformed and strengthened, urgently, in order to stop/control the drainage on the State’s revenues.
“It may be more prudent to require the payment of all applicable taxes upfront and for applications to be submitted for refunds, subsequently, when valid evidence is available and proper audits can be performed, or to replace the granting of tax exemptions with the granting of tax credits which can be claimed when tax returns are submitted, or a hybrid of both systems.”
The body recommended that consideration be given to phasing out, where possible, all duty and tax free allowances in favour of a system of tax credits, a principle inherent in the system of capital allowances.
GRA’s Godfrey Statia told Kaieteur News that he is a proponent of tax credits being applied in Guyana. He holds the view that there is a strong case for it here.
He said, “They are simpler and easier to administer. They allow you to comply before you get the tax credits. If you move away from exemptions and give tax credits life would be easier so long as it is administrated in the right way. But to move in that direction, you need your IT system in place and your people need to be schooled in it. But that is easy.”
Statia said, however, that while a strong IT system needs to be in place, tax credits can be implemented almost immediately for corporate taxation (which involves imposing a tax on the net income of a company).
The GRA Commissioner General said that tax credits, for example, can be applied to the gold sector. Statia said that he has already discussed this matter with gold miners and “I think they are coming around to it as being the most ideal thing for them.”
Within the last two decades, questions have been raised about the benefits derived from the grant of millions of dollars worth in tax incentives and holidays to certain groups of people.
The Tax Reform Committee has since noted that the most important revenue loss pertained to duty exempted goods. It said that this is partly related to the extreme openness of the Guyana economy and the high propensity to import, as seen over the years in the case of companies/businesses.
The Committee said, however, the weighting for imports is even greater in the case of diplomats, public officials and re-migrants, probably due to the high rate of exemption on vehicles for these categories of persons.
The body said that the revenue loss for exemptions granted to diplomats for the year 2014 alone was $1.4B. The revenue loss for incentives granted to re-migrants and public officials was $2.1B and $1.4B respectively.
With respect to incentives, the Committee explained that these are typically provided to companies and businessmen, in the expectation that they would lead to greater volumes of investment and re-investment, than would otherwise be the case.
The Committee noted that the incentives may relate to both foreign and local investors. It said that these can be designed to be more generous, depending on the expected benefits, in terms of level of investment, number of jobs to be created, the vintage nature of the technology to be transferred, the number of employees to be trained, etc.
The Committee said that the latter conditions may be expressly stated in the form of performance requirements for the receipt of the incentives.
In addition, the Committee commented that the types of incentives may comprise exemptions of various sorts, such as customs duties, value added tax (VAT), and excise taxes. It said that customs duties are concentrated in fuel products, industrial inputs and passenger cars; VAT in industrial inputs; and excise tax in fuel products and passenger cars.
The committee also noted that there are investments and accelerated depreciation allowances, along with Export-Processing Zone (EPZ)-type infrastructure facilities, and the incentives mix, which may depend on whether the economic activity is included in the incentives legislative and regulatory framework.
Besides the aforementioned exemptions, the TRC said that the other major incentives tool relates to the granting of tax holidays.
Based on data provided by the Guyana Revenue Authority, the Committee pointed out that companies and businesses accounted for about 78 percent of the total value of exemptions, in terms of revenue lost to the national treasury in 2014. The Committee said that the types of exemptions responsible for the revenue loss related to customs duties, VAT, excise taxes and stamp duty foregone.
The Committee said, “Revenue loss would also pertain to the granting of tax holidays. Because of the failure to comply with the requirement in the Investment Act for an audit of tax holidays granted and the laying of the report thereon in the National Assembly, it is not possible to determine the revenue foregone in the granting of tax holidays in Guyana.”
The Committee continued, “The entities that are involved in the granting of tax holidays are GO-Invest, the Guyana Revenue Authority and the Ministry of Finance. However, it does not appear that there is any mechanism in place for any post-approval audit or review.”
It added, “For the year 2014, the revenue loss from exemptions, alone, relating to companies/businesses was equivalent to $43.2 billion, and for all beneficiary categories, $55.6 billion. In 2015, the revenue loss from exemptions alone, relating to companies/businesses, was $56.6 billion.”
Additionally, the TRC said that the total corporate tax remissions/exemptions were equivalent to 31 percent of Central Government tax revenue and exceeded actual corporate tax revenue in 2014.
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