Last week, we carried our second article highlighting the key findings and recommendations contained in the International Monetary Fund (IMF) report entitled “Guyana: A reform Agenda for Petroleum Taxation and Revenue Management” dated November 2017. Today, we conclude our analysis of the report and highlight the remaining findings and recommendations for the benefit of our readers.
Chapter II: Fiscal regimes for extractive industries (cont’d)
Mining sector fiscal issues
Artisanal miners pay a flat rate of five percent on the gross value of gold production, while for large scale miners the royalty is on a per ounce basis using the world market price for gold – five percent under US$1,000 and eight percent above US$1,000. The current royalty system ignores the profitability of individual mines. A preferred option is a combination of royalty and a mining rent tax. The latter is based on an additional tax on profitability beyond a prescribed threshold. In addition, mining businesses that obtain tariff and Value Added Tax (VAT) exemptions on imports favour foreign suppliers over domestic ones, thereby creating competitive imbalances and administrative complexities. Companies also experience significant delays in the processing of their annual investment development agreements to import equipment under contractually granted exemption.
The IMF team believes that a comprehensive review of the mining tax regime would provide a good basis for introducing a generally applicable fiscal regime for future investments in mining.
Petroleum revenue administration
The exploration and development phase of petroleum extraction typically covers a time-span of five or more years. Since the related expenditures will be charged against future revenue, the tax authorities need to start monitoring and auditing these expenditures. It is not so much about the number of staff but more the particular skills needed to undertake these activities. ExxonMobil estimates the cost to develop phase 1 of the Liza field at US$4.4 billion.