A Bill which grants a tax waiver to lending institutions on income earned from loans given to small businesses in a specified manner could potentially benefit 5,000 vulnerable persons, Finance Minister, Dr. Ashni Singh says.
The Fiscal Enactments (Amendment) Bill 2010 was supported by all parties and passed in the National Assembly yesterday. The Bill “seeks to give effect to a wavier of tax on income of a designated small business lending company derived from loans provided to a small business in a manner specified by agreement.” The minister may, by order, designate as an approved small business lending company, any company which has entered into an agreement with the government in which the company agrees to finance small business loans in accordance with the terms of the agreement, the amendment states.
“What this Bill seeks to do…is to permit us to establish small business lending programmes with… designated small business lending companies which typically would be expected to be licensed financial institutions. And it permits us under those programmes to exempt from income tax or corporation tax, the income that is earned by those companies on the loans granted under the programme”, said the Minister, piloting the legislation through the House. “The direct result and the consequence of this would be a reduction in the cost of lending under such programmes and indeed it is our expectation and it is our intention in the course of discussing and concluding these arrangements with the financial institutions concerned to ensure that we reduce to an absolute minimum the cost of lending under the programmes to be implemented”, he said.
“If the financial institution concerned…will enjoy an exemption from tax on income earned on the loans that they grant to small businesses under the programme, it is our expectation that the benefit that they will enjoy from the tax exemption will be passed on and reflected in the cost of lending to the beneficiaries under the programme”, the Finance Minister added, pointing out that a similar framework exists for the low income housing programme and it has worked very well.
PNCR leader, Robert Corbin, while indicating his party’s support for the Bill recalled his party’s call for comprehensive tax reform. He questioned the criteria to be used in determining small credit pointing out that this is relative in terms of the size of an economy. Since this incentive will be determined in a discretionary manner on the part of a minister or government agency and there were no criteria, he asked what would be considered as a small business and the criteria.
Alliance For Change (AFC) Chairman, Khemraj Ramjattan while indicating his party’s support also raised concerns. “Generally Mr. Speaker, prior to a tax waiver or an exemption being granted, we would’ve had a specialized definition of what small business means. What it is that compartmentalizes or the characteristics that compartmentalizes this set of small business. Is it going to be friends of the government? What are some of the categories and characteristics? They are not here. And this is why I am saying that there is an element of vagueness, there is an element of vagueness about this. We do not know because it is going to be left exclusively to the discretion of the Minister”, he argued.
He said that a variety of matters are left “hanging in the air” to the extent that they are uncertain about it and referring to the Queens Atlantic deal, said “we are still at a loss”. He also asked what will be the revenues forgone as a result of this exemption.
In response, Singh said that the facility is not being extended to the small business per se but to the lending institution that will be lending their own resources and will be managing their own portfolio in identical fashion to the low income housing programme. Any agreement sealed with the lending company will be laid before the National Assembly, he added, pointing out that this is in the legislation.
Perspectives
Earlier, he had said the Bill can be viewed from many perspectives. It can be seen as improving access to and reducing the cost of credit for persons, especially vulnerable persons, he said. “There are good bankable opportunities out there that cannot be accessed because of the more conventional approach to providing credit. We are seeking to remove one of those impediments by promoting and encouraging targeted small business lending”, the Minister declared.
He said that the Bill can also be viewed from the perspective of promoting small businesses and empowerment. Without naming a bank, he said that the government has engaged with a financial institution that has indicated its intention and willingness to make available $500M to establish a facility under the programme. “We are speaking here potentially of 5000 vulnerable people…accessing financing when they otherwise could not. We are speaking here of 5000 small businesses potentially being established when otherwise they would not have been”, he pointed out.
Minister of Human Service and Social Security, Priya Manickchand later revealed that it was GBTI. “We have partnered with the Guyana Bank for Trade and Industry (GBTI) particularly on this scheme where we are going to be expending in excess of $500M on meeting the needs of single parents by allowing them to access, particularly women, access loans that will allow them to set up their own business or enterprises that will generate income so that they could meet the needs of their families”, she said.
That scheme, called Women of Worth (WOW) will be launched today and Manickchand said the criteria for benefiting will be the recipient will have to be a woman between the ages of 18 and 60 and has to be earning under $40,000 per month. She said the applicant would also have to be on the single parent register and have knowledge of some type of skill or expertise. “There is going to be no collateral required to be able to access this loan”, she said adding that 5000 women can be reached.
“We expect it to improve the status of women. We expect it to generate income for our women, our single parent women. We expect our single parent women to accumulate wealth. We expect our single parent women from being empowered by these facilities to play a larger part in decision making of this country. We expect because women are going to depend less on their partners or on persons that could take advantage of them that this facility will reduce violence against women and children”, the Minister declared adding that this could catapult Guyana to gender equality.
Singh had also said that the Bill can be viewed from the perspective of creating lending opportunities for the financial sector and also inclusive banking; “bringing the unbanked into the formal financial system”. (Gaulbert Sutherland)
