The GRA should not be weaponised against local content violators

Jun 18, 2024 Features / Columnists, Peeping Tom

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Kaieteur News – The Guyana Revenue Authority (GRA) must recognise its role as a tax collection agency and not allow itself to be weaponised to perform functions outside of its remit. While the GRA implements government’s tax policies, it should be insulated from manipulation by the government.

This is why it was disturbing to read that the government plans to collaborate with the GRA to root out what it calls ‘fronting’ or ‘rent a citizen’. But why the GRA?  Is it the GRA’s role to police the ownership and staffing structure of foreign and local firms to ensure compliance with local content laws? And what does the GRA have to do specifically concerning the unethical practices of ‘fronting’ and ‘rent a citizen’?

‘Fronting’ is a practice where foreign companies use local individuals to meet local content requirements for ownership and staffing, without genuinely adhering to the spirit of these laws. According to the Local Content Act, a company must have Guyanese citizens in at least 75% of its executive and senior management positions, and at least 90% in non-managerial and other positions to qualify as a local company. However, to circumvent these requirements, some companies engage in ‘fronting’ by placing Guyanese individuals in specific roles merely to appear compliant, without granting them real authority or ownership. This deceptive practice allows foreign companies to enjoy the benefits intended for genuine local businesses.

The Local Content Laws also require that Guyanese must own at least 51% of a company for that company to qualify as a local company under the legislation. ‘Rent a citizen’ refers to the practice where foreign companies use local individuals as figureheads or nominal owners to satisfy local content laws, without giving them actual control or benefits.

While ‘fronting’ and ‘rent a citizen’ are clearly unethical, it is for the authorities to prosecute those engaged in such practices. ‘Fronting’ is a form of fraud as it misleads authorities and undermines the purpose of the Local Content Act, which aims to promote genuine local participation and benefits. ‘Rent a citizen’ also involves fraudulent misrepresentation, as it creates a false impression of compliance with legal standards designed to support local businesses and development. In one instance, the government’s denial of local content certification reached the court. The court ordered the government to issue the certification deeming that the Local Content Secretariat had acted outside of its powers.

That decision suggested that instead of taking unilateral action, the government should be focusing on strengthening its local content laws and regulations. That has not happened yet even though it was said that loopholes were going to be plugged. Now comes this bizarre announcement that the government would be collaborating with the GRA in relation to ‘fronting’ and ‘rent a citizen’ practices. But why GRA? What violations of the country’s tax laws take place when there is ‘fronting’ or ‘rent a citizen’ schemes?

The GRA’s role in auditing cost recovery expenses for Exxon is already controversial. The tax agency should only audit for its own purposes – tax purposes – and have no role in the actual government’s audit of cost recovery expenses. Such audits involving the GRA poses a potential conflict of interest and is outside of the tax agency’s legal remit. The GRA should not allow itself to become embroiled in any collaboration with the government in relation to cracking down in ‘fronting’ and ‘rent a citizen’ practices. It should advise the government to instead focus on strengthening the local content laws. In declining to collaborate, it should suggest that the government implement stronger vetting procedures for companies claiming local status, including detailed checks on ownership structures and management roles. The government should also institute, under the laws, the authority to undertake regular audits and independent reviews to ensure compliance with local content requirements. The government should also be encouraged to institute, again through legislation, severe penalties for companies and individuals found guilty of fronting or “rent a citizen” schemes.

To manage the certification process, there must be established a dedicated regulatory body to oversee compliance and investigate suspicious activities. This body should be independent of the Ministry of Natural Resources. But even more fundamentally, the government needs to introduce legislation to more clearly define “beneficial ownership,” to close any loopholes that might be exploited. The bottom line is that it is legislation that needs to be reformed to prevent the unethical practices which the government is desirous of eradicating.

The GRA should stay clear of being weaponised against those who the government feels are breaching the local content laws. The GRA’s core function relates to administering the country’s tax’s laws. It should not be drawn into any gunfights on behalf of a government which has historically shown a penchant for intruding into the functions of statutory bodies. (The views expressed in this article are those of the author and do not necessarily reflect the opinions of this newspaper.)

 

 

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