Some oil companies are employing foreign employees and rotating them in order to evade paying taxes and bypass local content requirements here, the government said and plans are on stream to implement legislation to stop this.
“They are bringing in rotating workers, a long list of them; foreigners. They are getting work permits for them and we believe they are doing it for two purposes. One is to bypass the Income Tax Act [which says] … you have to be resident in Guyana for six months before you are eligible to pay income tax. So they’re rotating them for six months and then sending them back. They’re bypassing …their eligibility for taxation. Sometimes they bring them back the following year, or new people,” Vice President Bharrat Jagdeo told a press conference on Wednesday.
The Vice President said the other reason was to bypass the local content requirements which speak to having only 25% of the total workforce as foreigners and in management positions.
“I have seen evidence that is available to the local content secretariat where they have a long list of companies who are rotating workers and a lot of them are in management. Now the law says to qualify for a local content certificate you have to… limit your management to 25%. So 75% of your management has to be Guyanese. In the first couple of years we gave some waivers because some companies had contracts with EM and the change out would have taken some time. But this has become a loophole for some of them to bypass the system,” he explained.
However, the government is moving to take strict action with legislation and those found breaking the law will face the consequences which could mean losing their Local Content Certificate, he said.
“I spoke with the Commissioner and we are now drafting legislation that will cover that loophole, so that people who come to work in the oil and gas companies can’t use this creative mechanism to evade taxes,” Jagdeo said.
The Local Content Act was passed in the National Assembly and assented to by President Irfaan Ali in December 2021. To deliver on its legislative target, it “puts in place regulatory mechanisms to implement, investigate, supervise, coordinate, monitor, and evaluate participation in local content in Guyana”.
However, since then, there have been many complaints from locals about the loopholes foreign companies are taking to evade many of the measures.
This saw President Ali assuring the nation the next year that his administration would be continually reviewing Guyana’s Local Content Act to close loopholes that could be exploited by investors.
That same year, Jagdeo had also addressed the issue of companies utilising junior staff to meet local content requirements.
“There are many people who are trying to bypass the provisions of the legislation. It has been brought to my attention, for example, that a company that may have had maybe three foreign directors/managers in the old dispensation. Now to get past the legislation since there is a 75 per cent management team [requirement] …, they simply take junior staff and change their designations. So, the management team now becomes larger. So, they fulfil that requirement. But it’s just a designation for junior staff. When you look at their salary structure, their salaries have not changed,” he had told a Guyana Manufacturing and Services Association dinner.
The law states that a “Guyanese company” should be interpreted to mean “any company incorporated under the Companies Act – (a) which is beneficially owned by Guyanese nationals who ultimately exercise, individually or jointly, voting rights representing at least fifty-one percent of the total issued shares of the company; and (b) that has Guyanese nationals holding at least seventy-five percent of executive and senior management positions and at least ninety percent of non-managerial and other positions.”
A “Guyanese national” means a citizen of Guyana.
In June this year, the Ministry of Natural Resources had announced that as part of its monitoring of Guyana’s petroleum industry, it had, through the Local Content Secretariat, intensified its tracking of the practice known as “rent-a-citizen” or “fronting”.
Prevalent mainly in cases of joint ventures, it said in a press release, “rent-a-citizen” or “fronting” refers to the unethical practice where foreign companies use locals or local entities as fronts to meet local content requirements, while the actual control and benefits remain with the foreign entity.
“This practice undermines the objectives and spirit of the Local Content Act, which aims to ensure that the citizens of Guyana benefit meaningfully from and participate actively in the nation’s natural resources sector,” the release had stated.
It added that to address these issues, the government, through the ministry, was actively pursuing measures to curb instances of rent-a-citizen. The ministry said that one of the steps being taken was enhancing its collaboration with the Guyana Revenue Authority.
This closer working relationship, it added, aimed to identify and penalise those engaging in fronting, ensuring that all stakeholders adhere to the legal and ethical standards set forth by the Local Content Act.
The ministry said it remained committed to fostering a transparent and equitable petroleum industry that benefits all Guyanese. “We urge everyone to support these efforts and uphold the integrity of our local content framework,” the ministry said.
