Dec 25, 2020 News
Kaieteur News – The total revenue Guyana received so far from oil exports and royalty is almost at US$150 million since production began last December. However, the country lost a lot more in 2019 due to the huge tax exemptions it granted to oil companies operating on its shores.
Those tax exemptions total a whopping US$600 million. Same was revealed in the Audit General’s report for 2019.
“During the year 2019, the Oil and Gas Sector received tax exemptions totalling $125.849 billion through the Go-Invest and the Geology and Mines Commission (GGMC),” the Audit Report for 2019 noted.
To put that figure into perspective, the magnitude of those exemptions measures up to 37% of Guyana’s 2020 $329.5 billion budget. In addition, the report pointed out too that two companies objected to assessed taxes totalling some $265.626 million.
Guyana will continue along this path of billions being lost in revenue because these very exemptions it granted. For context, instead of allowing ExxonMobil and its partners, Hess Corporation and CNOOC/NEXEN to pay their fair share of Corporate Income Taxes (CIT), Guyana agreed to pay the same on behalf of the contractor from its share of oil profits.
In other words, if Guyana gets $50 in profits and the taxes to be paid to the Guyana Revenue Authority (GRA) amount to $20, it means that Guyana has only gained $30 in profits. If Guyana did not agree to such a provision in the Production Sharing Agreement to begin with, it would have walked away with a total of $70.
Tom Sanzillo, Director of Finance at the Institute for Energy Economics and Financial Analysis, commenting on this very issue had stated that the public is fundamentally being shortchanged when the government pays the income taxes for the company.
Sanzillo who has 30 years of experience in public and private finance, had noted too that in a five-year-period, ExxonMobil would be walking away with US$653 million which it should have paid in taxes.
Based on his calculations, Sanzillo stated, that bill is what Guyana would be left paying from its share of the profits. A simple calculation of that figure over the 40-year life of the agreement, considering Exxon’s plan for five oil vessels by 2026, would see Guyana losing US$40 billion in taxes throughout the deal.
However, the US$653 million projection is based on the early years of Exxon’s oil production in the Stabroek Block, when it is recovering most of its investment in the development of the fields.
Exxon’s profit will increase to a large extent after it has recouped those investments, therefore, higher taxes would be due, and the actual loss of tax revenue for Guyana will likely be much higher.
Canadian Engineer, Darshanand Khusial had also pointed out the unfair precedence this sets as taxes for big name oil companies are waived while the Guyana Revenue Authority (GRA) hassle commercial enterprises to pay theirs.
“One cannot help but notice the irony of small Guyanese businesses struggling to pay 40% taxes but wealthy multinational companies having to pay no taxes,” he said.
Meanwhile, industry analysts as well as global organizations such as the Inter-American Development Bank (IBD) and the International Monetary Fund (IMF) have said that Guyana should have taken more than a 50% split of the profits made from the Stabroek Block since it is satisfying the tax obligations of the oil companies.
Both institutions acknowledged that Guyana is shortchanging itself by opting to pay the oil companies’ taxes without increasing its take.
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