Latest update March 28th, 2024 12:59 AM
Aug 21, 2018 News
The exploration, development and production phases of petroleum extraction constitute potential tax risks for the revenue administration.
This salient point was outlined to the government in a report that was prepared by the International Monetary Fund (IMF).
According to the document seen by Kaieteur News, the IMF indicated to the government that very large investments are made upfront in the exploration and development phase before the government may collect direct revenues from the production phase.
The Fund said that the exploration and development phase will typically cover a time span of five or more years, and expenditures incurred during this period will be deductible against future income. The Fund said therefore, that the tax administration department of Guyana needs to closely monitor and audit all costs from the start of the exploration and development phases. The Fund said that a failure to ensure proper monitoring would lead to significant tax leakages for the country.
In addition to this, the Fund said that the transition from the exploration phase to the development phase would be a particular challenge for the Guyana Revenue Authority (GRA) which has no petroleum experience.
As for development expenses, the IMF said that these are extremely large compared to any industrial investment, especially in a small country like Guyana. The Fund said that typically, goods and services of a very specialized nature are needed and in a short period.
“For example, ExxonMobil estimates that the cost to develop phase 1 of the Liza field to start production in 2020 is likely to be around US$4.4 billion. Development expenditures represent costs of a different nature than the expenditure in the exploration phase, and a large inflow of new international sub-contractors will enter the country during this phase.”
The Fund said, “It can be difficult for the tax administration to scale-up the capacity to meet this challenge regarding the influx of sub-contractors, since this is not primarily a matter of the number of staff, but more the particular skills necessary to tax the petroleum sector. Moreover, oil companies may also compete with the tax administration for experts with the same professional skills (e.g. accountants, auditors, economists, lawyers) during the development phase.”
At present, the Fund noted that two ministries are responsible for administering petroleum revenues. According to the Production Sharing Agreement (GRA) Guyana has with ExxonMobil, the Minister responsible for petroleum is administering the petroleum agreement, while the Guyana Revenue Authority is responsible for general tax administration.
The Fund warned that fragmented organizational arrangements for the administration of petroleum revenues could create some challenges that must be addressed. In order to establish an efficient and effective administration of petroleum revenues, the Fund emphasized that close cooperation and coordination between the different government agencies is required.
THIS IDIOT TELLING GUYANA WE HAVE NO SAY IN THE 50% PROFIT SHARING AGREEMENT WE HAVE WITH EXXON.
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