City Mayor slams govt. for favouring foreign companies over locals for tax concessions

Nov 18, 2024 News

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Kaieteur News-Georgetown Mayor Alfred Mentore has called out the Government of Guyana (GoG) for what he sees as preferential treatment of foreign companies, particularly in the oil and gas sector, when it comes to granting tax concessions and incentives.

He made the aforementioned statement in his response to criticism received from the government in relation to a 25% waiver granted by the City Council to the Guyana Telephone and Telegraph Company (GTT), now rebranded as ONE Communications.

Mentore argues that while multinational corporations enjoy significant tax breaks and other benefits when investing in Guyana, local businesses, especially those outside the government’s favoured corporate class, are denied similar support. “While it [Government] has consistently been willing to grant major tax breaks and concessions to foreign companies, especially those in the oil and gas sector, when it comes to local businesses, particularly those that are not part of the government’s preferred corporate class, it seems to act with a different set of rules,” the Mayor wrote in his letter.

Foreign companies, including those in the lucrative oil and gas industry, often receive various incentives from the government. These include generous tax breaks, import duty exemptions, and other financial concessions aimed at encouraging investment and boosting economic growth.

The 2022 and 2023 Auditor General’s reports highlight the revenue collected from the oil and gas sector, as well as the extensive tax exemptions granted to it. According to the 2022 report, the oil and gas sector generated $86.207 billion in tax revenue, accounting for 28.6% of the total revenue collected by the Guyana Revenue Authority (GRA). This revenue was split between $80.711 billion from internal revenue and $5.496 billion from customs. Meanwhile, tax exemptions granted to the sector amounted to $108.275 billion. Value-Added Tax (VAT) refunds for oil and gas companies in 2022 totaled $5.113 billion, with a portion of refunds used to offset tax liabilities.

In the 2023 report, the oil and gas sector’s contribution rose to $128.070 billion, a 46% increase from 2022. This included $122.162 billion from internal revenue and $5.908 billion from customs. Notably, the total contractual tax exemptions granted to the sector was $196.569 million. VAT refunds for the sector amounted to $8.854 billion in 2023, with 123 applications processed. This includes $3.534 billion in refunds issued to companies, while some VAT credits were disallowed.

Mentore  in his letter suggests that this policy, which has been a hallmark of the government’s approach to foreign investors, has contributed to a widening gap between local enterprises and multinational corporations. The Mayor argue that this unequal treatment fosters an environment of inequality, where foreign companies thrive while local businesses struggle to survive. He highlighted the growing disparity between the interests of foreign investors and the needs of small and medium-sized enterprises (SMEs) in Guyana.

“This dual approach creates an environment of inequality, where local businesses are made to struggle while foreign companies are given preferential treatment,” he stated. Mentore further suggested that the government’s continued focus on attracting foreign investment, at the expense of local businesses, reflects a broader political agenda that prioritizes multinational corporations over the country’s own economic backbone.

“The government’s ongoing practice of granting concessions to foreign corporations, while denying local businesses the same level of support, only underscores the growing disparity between the interests of multinational entities and the needs of Guyana’s small and medium-sized enterprises,” the Mayor said.

He added, “In this environment, local businesses are left to struggle, while the government continues to bend over backwards for foreign investors.”

Moreover, ExxonMobil and its partners Hess, and CNOOC, operating under the 2016 Production Sharing Agreement (PSA), did not have to pay about $306 billion income taxes on their Guyanese operations in 2023, leaving the government to cover the costs.

Last year, ExxonMobil, Hess, and CNOOC earned an estimated $1.3 trillion in profits for 2023, all of which were tax-free in Guyana. This arrangement stems from the lopsided 2016 PSA which was signed by the previous Coalition government.

The 2016 deal allows the oil companies to recover up to 75% of their investment costs from production and pay no taxes on their profits. Instead, it stipulates that the government covers their tax liabilities from its share of the profit oil. As part of this deal, Guyana earned $336 billion from oil in 2023, but the government had to pay a staggering $306 billion in income taxes on behalf of Exxon and its partners. The PSA mandates that the government, from its 14.5% share of the oil revenue, must settle the taxes owed by the companies to the GRA.

This tax arrangement has been criticized both locally and internationally. Despite the growing calls for renegotiation, the Irfaan Ali administration has stood by the sanctity of the contract, stating it will not seek to amend the terms. In an interview last year, President Ali acknowledged the deal was not in Guyana’s favour but insisted that honouring the contract is important to his government’s policy.

(City Mayor slams govt. for favouring foreign companies over locals for tax concessions)

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• Alfred Mentore, City Council, concessions, tax, waivers

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