Latest update March 19th, 2024 12:59 AM
Jun 22, 2021 News
Kaieteur News – Within the next few days, Natural Resources Minister, Vickram Bharrat, must find over $5B to pay the 2020 Income Tax for two Stabroek Block partners. Highlighting this recently was Chartered Accountant and Attorney-at-Law, Christopher Ram, in two columns published on his website www.chrisram.net.
His conclusion was arrived at following a review of the financial statements of Hess Guyana Exploration Limited and CNOOC Petroleum Guyana Limited (formerly CNOOC/NEXEN). He noted that for Hess, Bharrat has to pay $2.3B to the Guyana Revenue Authority (GRA). For CNOOC, he must pay GRA, Corporation tax totalling $3.1B. The total to be paid for the two companies out of the government’s portion of its revenue is $5.4B. It therefore means that Hess and CNOOC walked away with $16.2B in profits in 2020 tax free.
Failure to pay the taxes, Ram noted would constitute a breach of the Stabroek Block Petroleum Agreement and would also incur late filing penalty (10 percent) and interest (18 percent).
Upon noting the foregoing, Ram said Guyana has voluntarily allowed itself to be in a financial chokehold by the Stabroek Block partners. There were previous calls for this provision in the contract to be amended or for Guyana to increase its take of royalty from the current meagre two percent. But those appeals fell on deaf ears.
IMF REVIEW
According to all the Production Sharing Agreements (PSA) Guyana has with the world’s oil majors, the Government will pay the companies’ income taxes from this nation’s share of the profit oil.
The International Monetary Fund (IMF) has said there is absolutely nothing wrong with this arrangement, except for the part where Guyana fails to increase its take of the profit oil upon agreeing to pay the said taxes.
In a technical report dated April 2019, the IMF had informed the previous government that this arrangement, which it has in the PSAs is referred to as Pay On Behalf (POB). The IMF said POB is quite common and used in over 20 petroleum producing countries.
The financial institution said, “As a consequence, when the POB scheme applies to the sharing of profit petroleum, the agreed percentage of the government’s share in profit petroleum has to be higher…” It therefore means that since Guyana agreed to pay the income taxes of ExxonMobil and partners, its take of the profit oil as outlined in the Stabroek Block agreement should have been much higher than 50 percent.
Furthermore, the IMF which is one of Guyana’s key partners in developing its capacity for the management of the oil sector, highlighted that the PSA provisions supersede the nation’s Income Tax Act.
In its 2019 report, the IMF said, “While the ITA (Income Tax Act) applies to the petroleum operations performed under a PSA, its provisions are superseded by the provisions of the PSA dealing with the determination and payment of income tax, subject however to the special authorisation process set forth in Section 51 of the Act.”
The Fund noted that Section 51 allows for the Finance Minister to take an order to the National Assembly which allows for the Income Tax Act to not apply to the oil companies. That Order for ExxonMobil and its partners, Hess Corporation and CNOOC/NEXEN, was passed on August 2, 2016 in the National Assembly.
It therefore means that while local companies are required to obey all provisions in Guyana’s laws covering taxes, the Stabroek Block partners are insulated from it.
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