Management and Investment of Oil Revenues

be credited to the Consolidated Fund. As the law currently stands, the entire proceeds from the oil companies will be available to the Legislature and the Executive to appropriate for spending. That is clearly unacceptable and unfair to future generations when the wells are exhausted and there are no oil revenues.

Recently, Guyana has become a magnet for consultants and investment specialists offering gratuitous advice to Guyana on everything from oil refineries to establishment of a Sovereign Wealth Fund. By now, every Guyanese is aware that the primary functions of such a fund are the stabilisation of the country’s economy through diversification, and the setting aside of revenues for future generations. Such goals are not only noble: they often make economic and practical sense. For Ram & McRae therefore it is not a question of whether or not Guyana should have a SWF, it is clear that it should. That is the easy part. The hard part is to recognise that a Sovereign Wealth Fund, however described, is part of the wider issue of revenue management, including resource governance.

The Resource Governance Index for 2017 (Governance Index) covering eighty-one countries across the world, distinguishes the successful extractive industries countries of which Norway, Canada, Chile and Botswana are held up as models, – from those that have been plagued with the “resource curse” or the Dutch Disease, of which neighbouring Venezuela, Nigeria, Myanmar and Uzbekistan are unfortunate poster children. The distinction between these two group of countries lies in the establishment and adherence to sound laws, policies and practices conducive to value realisation, revenue management, and an enabling environment.

The first component - value realisation - covers the governance of allocating extraction rights, exploration, production, environmental protection, revenue collection and state-owned enterprises. The second - revenue management - covers national budgeting, subnational resource revenue sharing, and sovereign wealth funds. The index’s third component assesses each country’s enabling environment, or governance framework, made up of Open data, Political stability and absence of violence, Control of corruption, rule of law, regulatory quality, government effectiveness and voice and accountability.

Guyana is not among the eighty-one countries covered in the Index. So while it would be meaninglessly idle to speculate where the country would have ranked in the Index, it would still be useful for our policy makers to take note of its findings and assessments and to consider the examples to follow and the lessons to be avoided. After all, only four of the countries, or one out of every twenty, is considered “good”, i.e. has established laws and practices that are likely to result in extractive resource wealth benefiting citizens. Another twelve countries were found to be satisfactory, i.e. have some strong governance procedures and practices, but some areas need improvement. In those countries, it is reasonably likely that extractive resource wealth benefits the citizens of these countries, but that there may also be costs to society.

The majority of the countries – around sixty - are rated as “weak”, or “poor”, with a mix of strong and problematic areas of governance, or practically few respectively, procedures and practices to govern resources. Finally, there are ten countries which are rated as failing. In these countries, there is an absence of any governance framework to ensure resource extraction benefits society. In these countries, it is highly likely that benefits flow only to some companies and the country’s elite.

But the Index is not without some significance to Guyana. Ram & McRae has compared the rankings in the Governance Index with those in another major Index in which Guyana does not fare too well – the Transparency International Corruption Perception Index. A comparison shows that those countries which fare poorly on the Corruption Index also fare poorly on the Governance Index. Norway, Chile, United Kingdom, Canada and Australia and the USA rate highly in both Indexes but without exception, every country found at the bottom of the ladder in the Corruption Index is among the worst in the Governance Index as well.

Guyana is among the countries with a poor showing in the Corruption Index which may portend a poor showing in the Governance Index as well, whenever it is included among the petroleum and extractive industries Governance Index. While the Government successfully applies for membership of the Extractive Industries Transparency Initiative (EITI), it is adamant about not disclosing its petroleum agreements, offering facile excuses which not only make the country seem backward but can make corruption so much easier.

Writing in a World Bank 2017 Publication, Peter D. Cameron and Michael C. Stanley noted that while good practice in resource management is increasingly recognised, the experience in most resource-rich states “has not been especially encouraging” and that there are continuing problems in the implementation of sound resource revenue management. The writers identified three resource constraints faced by developing countries with recently discovered large scale natural resources and four main challenges. With minimal exception, all seven constraints and challenges apply directly to Guyana, and are therefore worth repeating.

Constraints: 1. A scarcity of capital, with an interest rate higher than the global rate, and limited access to international capital markets, possibly as a result of the country’s credit rating. 2. An undersupply of public infrastructure. 3. An investment climate that lacks incentives to private investment.

Challenges: 1. Volatility and uncertainty of revenue receipts: Prices for commodities have defied the most informed price forecasting and have been stunningly unimpressive since the oil war of the seventies. Given the fungibility of money, significant oil revenues will affect both the revenue and capital budgets and could easily stop otherwise desirable projects midstream.

Halfway into its term, this Administration has not demonstrated that it sufficiently understands the law and issues regarding the petroleum sector and that it is capable of managing the petroleum resources. Most of the resources have been allocated or reallocated under archaic legislation by Ministers whose competence in the sector is unconvincing.

The Minister of Finance announced in his Speech the establishment of a Sovereign Wealth Fund, starting in 2018. Of course oil revenues do not arise until mid to late 2020 so there will be no petroleum money to put into the Fund. Maybe as a test run, the Minister of Finance and the Minister for the petroleum sector might wish to consider starting with a gold, diamond and bauxite fund and by the time oil revenues come in the country will have worked out the kinks.

Taxation without representation was one of the causes of the American Revolution and has ever since been an emotive appeal for those who consider themselves aggrieved by injustice. In a more peaceful environment the call is for a social compact – one of mutually enforceable interlocking rights and responsibilities, often between the State and the citizen. Where a breach occurs sanctions step in – penalties, including jail time for the tax cheat and for the Government, sanction through the ballot box. But the Government itself does not administer the tax laws or collects the taxes – it uses the tax authority as its alter ego or its agent. In the course of one’s life, one interacts with the tax authority more than any other arm of the Government. That Ram & McRae believes strongly that there needs to be a binding compact between the tax authority and the taxpayer is neither revolutionary nor new.

We sensed from the Minister’s Budget Speech a recognition of the need for a less combative, less adversarial relationship between the government and the governed. We believe that the mood is right for the establishment of a strong, enforceable charter between the taxpayer and the Guyana Revenue Authority. While we recognise that the incidence of tax evasion is extremely high, the traditional attitude of the tax administrator towards taxpayers who are often meeting or trying to meet their obligations leaves a lot to be desired.

Most taxpayers who have had dealings with the GRA usually come away from those encounters feeling, justifiably or not, that they did not get a fair shake. These viewpoints generally arise from the belief that no matter what evidence is produced or what is said, the attitude of the GRA is one of distrust and display of power. As a long established firm of accountants, Ram & McRae has an entirely different relationship and experience with the tax authorities but whether justified or not, this is and remains the perception of the average person who has had to deal with a tax issue.

This sentiment is in no way unique to the Guyanese taxpayer and it is safe to say that taxpayers the world over are equally unhappy with the way they are treated by their own tax authorities. In the United States of America, the feeling of helplessness is as bad if not worse because budget cuts have resulted in less attention to customer service and more emphasis by the Internal Revenue Service (IRS) on enforcement. Speaking with a live person at the IRS in the USA is almost impossible unless one is prepared to wait sometimes as long as two hours, after and if you have been able to decode the various prompt options offered by the sophisticated telephone system. Then even after all that time and frustration it is not unusual to hear: “Due to excessive call volume, we are unable to answer your call. Please try your call again later,” followed by the click of the system disconnecting the call.

There is however an alternative which is available and which has its beginnings in the Office of the Taxpayer Ombudsman which was created in 1979 by the IRS “to serve as primary advocate within the IRS for taxpayers”.

The position of Ombudsman was codified in the Taxpayer Bill of Rights in 1988 but it was felt that this was not enough and The Joint Committee on Taxation, a Congressional body, decided that a significant change was necessary. The Committee