The authority exists for Exxon to recover the 2% royalty
Guyana Revenue Authority (GRA) boss, Mr. Godfrey Statia, made a rare public media commentary on the roiling issue of royalties. The old Central High man did justice to his learning, but I sensed that he sought to cover all present and possible eventualities, while being cautious not to ruffle any furs in this touchy territory. In so doing, I am just about positive that he left the common man in the dust, while creating a spiral of conversations among the cognoscenti, be they taxmen or regular members of the local punditocracy. I think that the clashing controversies have just begun, only deepened further.
Amid the deluge of details emerging from the Commissioner General (CG), there was reference to the Guyana’s Petroleum Tax Regime, Cost Recovery Regime, the Income Tax Act, and the discretionary powers of the subject minister. The CG was quick to point out that the minister, whoever he is, or under what mandate he operates, has not exercised such discretionary powers to date relative to royalty recovery, but that it could be. The point that must register is that, indeed, such powers are present. So, let that be on the record, along with the calculations relative to Cost Oil and Profit Oil. For a textbook discussion in some varsity setting, the CG would be well-received, and I commend him for his wisdom in saying the unsayable, while keeping his nose in joint.
Editor, as much as I defer to the chartered accountant and attorney at the helm of the GRA, what I think that this local luminary failed to emphasize was that all those regimes (Tax and Cost Recovery) are subservient to the Income Tax Act, and that whatever occurs under the realm of the Petroleum Exploration Act, in the context of royalties and cost recovery must align, and not come into conflict, with the Income Tax Act. The fact that the royalties payable by the operator fall under the ambit of possible ministerial waiver leaves open a door to reverse or neutralize any such payment actually made. What started out as a plus and benefit in Guyana’s favour could be relinquished with the stroke of a pen and convert that momentary event (royalty payment to be or negotiated away) into a charge or reduction against Guyana’s total oil receipts, however considered.
Moreover, I appreciate that when the royalties are paid, then such falls under the category of being tax deductible to determine tax expense. Taxes are not an abstraction; nor are deductions something without arithmetic or monetary logic. They represent a reduction, a lesser amount coming to Guyana, when the net figures are finalized. I would argue that the taxes that the oil companies (operator) are responsible for are absorbable by the Government of Guyana via tax deductibles. Hence, we are in effect footing a portion of the royalties due under the tax deduction scheme. Royalties, therefore, should be in a stand-alone classification all by itself, and not be ‘netted’ to below its low 2% level.
To make matters worse still, and for whatever it is worth, this country stands-in for the operator when taxes become the subject under consideration. That is, we pay the taxes for which the company obtains a receipt for something on which it never paid a nickel. It might be an irrelevance, but to add insult to injury, the operator can then utilize its Guyana GRA receipt for US income tax purposes. It is no different from what some people must do, with the difference being that living
persons in this boat, actually come out of pocket and pay their own fair share of taxes in Guyana. Somebody else did not pay it, certainly not the government.
There is nothing neutral or favour-able to Guyana in these schemes. To say so would be the height of absurdity, especially when it is the opposite that reigns. With all this going on, and the associated daily agitations, I am beginning to understand that International Republican Insti-tute poll/survey, which noted that oil didn’t feature too highly in the priorities of Guyanese. It figures when such a labyrinth, this web, could come into play over such a straightforward issue like royalties. It leads to the confusions present, if not the chaos, in getting to the bottom of something as basic as this.
Sincerely,
GHK Lall