Jan 06, 2021 News
– but gave away USD$600M in taxes to oil companies in 2019
Kaieteur News – When the COVID-19 pandemic struck the world, Guyana, like many other third world countries, were forced to seek financial aid to cope with the unprecedented health and economic crisis.
With aims of combating the pandemic in Guyana, the Inter-American Development Bank (IDB) had approved a US$22M loan, which it had announced on November 9th, 2020, under its Contingent Credit Facility for Natural Disaster and Public Health Emergencies.
The bank had said that the expenditures are necessary to contain transmission of COVID-19 and mitigate further health and economic consequences.
But before this, the IDB, on November 6th, 2020, had approved COVID-19 loan for Guyana, to the tune of US$30.4 million. This, it had said, will contribute to providing financial support for vulnerable persons hit by the crisis, and mitigate the fallout of the crisis on the education sector.
The World Bank had also approved a loan for Guyana, in the sum of US$7.5M. It said that the funds would strengthen laboratory capacity, support screening and surveillance, improve contact tracing, and equip healthcare facilities for more effective treatment and care of COVID-19 patients.
In total, Guyana would have stretched its hands for some USD$61M in COVID aid. It contrasts sharply with the giveaway of a whopping USD$600M in tax exemptions to oil companies in 2019. These and other startling details were revealed by the Auditor General (AG) in his audit report of 2019.
“During the year 2019, the oil and gas sector received tax exemptions totalling $125.849 billion through the GO-Invest (Guyana Office For Investments) and the Geology and Mines Commission (GGMC),” the Audit Report for 2019 had noted.
To put that figure into perspective, the magnitude of those exemptions measures up to 37% of last year’s $329.5B national budget.
In addition, the report pointed out, too, that two companies objected to assess taxes totalling some $265.626M.
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 had 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 (PSA) to begin with, it would have walked away with a total of $70.
Tom Sanzillo, Director of Finance at the Institute for Energy Economics (IEEFA) and Financial Analysis, on 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 ExxonMobil’s plan for five oil vessels by 2026, would see Guyana losing USD$40B in taxes throughout the deal.
However, the US$653M projection is based on the early years of ExxonMobil’s oil production in the Stabroek Block, when it is recovering most of its investment in the development of the fields.
ExxonMobil’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.
Meanwhile, industry analysts as well as global organizations such as the 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 had acknowledged that Guyana is shortchanging itself by opting to pay the oil companies’ taxes without increasing its stake.
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