Apr 27, 2018 News
By Abena Rockcliffe-Campbell
The local business community feels marginalized by the tax free privilege that government has extended to foreign companies hired by ExxonMobil. Several businessmen who spoke to this newspaper said that they feel as if they cannot compete with the foreign companies that may want to supply goods to ExxonMobil simply because “they have almost unlimited tax incentives and we do not. How can our government allow this?”
The men spoke on condition of anonymity after reading a previous Kaieteur News article which highlighted the tax free ride extended to foreign sub-contractors.
This newspaper contacted the Georgetown Chamber of Commerce and Industry (GCCI)’s President Deodat Indar for his comments on the plight of local businesses. Indar was quick to point out that ExxonMobil is a member of the Chamber. He has a responsibility to act in the interest of all members.
Nevertheless, Indar said that the conditions created in the contract that give an upper hand to foreign companies contracted by ExxonMobil is unfair and does not nurture a healthy business environment.
“As a private sector representative, we would advocate for a level playing field which I believe is important for any healthy business environment. There should be clarity of the investment climate in which we are going to operate in because it is not just ExxonMobil alone; there are others coming and want to come, but they want to ensure that the investment climate is clarified.”
“They need transparency about what they can get when they come to Guyana. When it comes to local businesses, we just want to make sure that we are competitive enough and there is nothing in law or contract that will put Guyanese businesses at a disadvantage,” said Indar.
Indar noted that when foreign subcontracts have endless tax incentives, they have no need to give smaller contracts to local businesses, “because they can bring in all these things themselves.”
Indar said that the Chamber understands the sanctity of contracts. “So if they do not want to change what is there in the contract, the government will have to make all those items zero rated. In that way, the tax break is on the item.”
Indar continued, “It works out cheaper for a foreign company to import a pipe than if a local company does, because the local company has to pay all the taxes. We have to be taken out from this position of disadvantage.”
PROVISIONS IN THE CONTRACT
The Production Sharing Agreement (PSA) that Guyana signed with ExxonMobil in 2016 secures a tax free ride for all foreign companies employed by ExxonMobil.
This fact was highlighted by the International Monetary Fund (IMF) in a 2017 report it handed to the government titled, “A Reform Agenda for Petroleum Taxation and Revenue Management.”
IMF noted that the PSA that ExxonMobil has with Guyana provides for “broad tax exemptions for subcontractors.”
Some of these foreign subcontractors operating in Guyana are Bristow Group Inc., Nobel Oil Group, and SBM Offshore.
IMF noted that Article 15:10 states that withholding tax on payments made by the contractor to sub-contractors or affiliated companies do not apply during the exploration period.
Moreover, the IMF noted that Article 21 says that subcontractors engaged in petroleum operations are exempt from Value Added Tax (VAT) and import duties on imports of equipment and supplies required for petroleum operations.
The only tax that foreign sub contractors employed by ExxonMobil will have to pay is excise tax. The companies only have to pay that tax on fuel imports at a rate of 10 percent. However, locals have to pay 50 percent excise tax on fuel (https://www.export.gov/article?id=Guyana-Import-Tariffs).
IMF said that Guyana foregoes revenue with such “generous” provisions.
The Fund said, “In addition to the forgone revenue, (the exemptions) introduces administrative complexities and risks of tax evasion. Finally, interest and dividend payments from affiliated companies’ or non-resident sub-contractors’ branch in Guyana to its foreign or head office or to affiliated companies are exempt from withholding taxes.”
The generous provision highlighted in the ExxonMobil-Guyana contract as regards foreign subcontracts is not very common around the world. In the few instances that these provisions were found, they came with conditions.
Article 17 of the Production Sharing Agreement between Liberia and ExxonMobil states that, “The Contractor and subcontractors are only exempt from payment of import, export, or re-export fees for goods under the Revenue Code.”
The exemption however, is only granted on the condition that the quantity and quality cannot be found by the contractor in the host country. In this regard, Article 26 of the PSA, which speaks to imports and exports says, “the Contractor, its agents, contractors and subcontractors undertake not to proceed with the imports mentioned in Article 26.1(a) insofar as such items are available in Liberia under equivalent conditions of quantity, quality, price, delivery and terms of payment, unless specific requirements or technical emergencies are presented by the Contractor.”
PSA WITH GHANA
Section 12.3 of Ghana’s PSA with ExxonMobil says, “Contractor and its Subcontractors shall not be obliged to withhold any amount of tax from any sum due in respect of work and services or the supply or use of goods for or in connection with this Agreement, except for a five percent (5%) withholding tax.”
PSA WITH QATAR
Section 22.7 ExxonMobil’s contract with QATAR states, “The Contractor, sub-contractors and Affiliates of the contractor shall be exempted from any royalties, excise, or similar charge payable to the government or its Affiliates with respect to Petroleum Operations or Petroleum marketing, or capital or property utilized in Petroleum Operations.”
It notes however that the aforementioned exemption shall extend to the subcontractors of the contractor on two conditions. It states these to be, “(i) They must be contracts signed up to the first anniversary of the Production Commencement Date; and (ii) provided that the particular Petroleum Operation undertaken for or on behalf of the contractor involves total expenditure of a capital nature in a tax year equal to or greater than US$10 million, after the first anniversary of the Production Commencement Date.”
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