The Guyana Revenue Authority (GRA) stands by its assessment that Citizens Bank and other commercial banks in Guyana owe approximately $4 billion in corporation taxes.
GRA Commissioner General, Godfrey Statia, told a press conference on Friday that while the banking association had approached him through the Bank of Guyana (BoG) to have a look at the issue with the aim of coming to an agreement, he is not prepared to change the assessment.
“Banks are commercial entities in the business of lending and have bad debts, however, while the financial standards allow banks to make provision for these debts in their accounting, the Corporation Tax Act speaks about bad debt in a different light. We deal with actual bad debt— not because you provide for a bad debt means it will actually be bad,” Statia explained, stressing that “you cannot write off that debt as a provision and expect GRA to accept it.”
The issue was first raised at the Annual General Meeting (AGM) of Banks DIH, when Chairman, Clifford Reis, noted that on December 20th, 2018, the company received Notices of Assessment from GRA, claiming additional corporation taxes of $534,416,000. Statia explained on Friday that for the sector as a whole, the sum is closer to $4 billion.
In the case of Citizens Bank, GRA has disallowed the company’s claims for deductions for impairment losses on financial assets in relation to the years of income ended 30 September, 2010 to 2012 and 2014 to 2016 inclusive.
According to Reis, while the company acknowledges its obligations to comply with provisionary requirements under both IFRS and the supervisory guidelines issued by the BoG, it utilised the former to compute its impairment losses on financial assets, and, thereby, claimed deductions on its corporation tax, as provided for in Section 16(I)(e) of the Income Tax Act.
Specifically, according to the 2018 Annual Report, “The group’s approach…is guided by IAS 39-Financial Instruments: Recognition and Measurement.” The report also notes that the bank is subject to prudential reserving rules as stipulated by BoG in its Supervisory Guidelines 5 (SG5) Loan Portfolio Review, Classification, Provisioning, and other Related Requirements.
“Where the impairment provision required under SG5 is greater than that required under IAS 39, the excess is dealt with as an appropriation of retained earnings to a general banking risk reserve,” the report explains.
However, this argument, for Statia, holds little weight, and he noted that while the banks have referenced IAS 39 and IFRS 9, the latter came into effect in 2018, therefore, the assessments predate the implementation of the standard.
He noted that the law, as it states, only allows the authority to accept actual bad debt as a write off, once banks can show that sufficient action was taken to recover debt, including whether there was a guarantee for the debt. “We are contributory negligent because we allowed it to go on for years, so people were of the opinion that they were doing the right thing,” he said, adding that this is one of the reasons GRA conducts audits across sectors rather than at individual institutions.
“It shows we are not after one person. We do it across the industry,” Statia stressed.
