Guyana's incentive regime
May 14, 2000
BUSINESS PAGE is dedicated to providing objective information an opinion on issued of interests to the business community and the public at large. The articles in Business page are prepared and contributed by CHRISTOPHER RAM. Christopher Ram is the Managing Partner of Ram & McRae, Chartered Accountants, Professional Services Firm.
As long ago as 1994, in a seminar on the subject Tax Reform - a vehicle for economic recovery - I noted that Guyana was identified in the late eighties as one of the twelve countries in the world with the most generous tax incentives around the world. At that time tax incentives might have justified the weaknesses in the economy, infrastructure and international image. With the introduction of the Economic Recovery Programme a number of those weaknesses have been addressed, though not entirely resolved.
The corporate, fiscal and financial systems have been revised, and all exchange controls removed. These measures have resulted in continuous significant economic growth despite serious deficiencies in the physical and social infrastructure.
After over ten years of economic decline, the Hoyte administration in 1991 embarked on an Economic Recovery Programme with support from the International Monetary Fund and the international community. This programme has been continued by the PPP/Civic administration and has led to improvements in all the key sectors of the economy.
Some achievements to date are:
* The external debt of the country has been reduced from US$1.9Bn. in 1991 to US$1.3Bn. in 1999 with the prospects of further debt relief in the next two years.
* During the same period domestic debt has increased from G$12.7Bn.to G$39.6Bn.
* Reduction in the balance of visible trade from US$61Mn. in 1992 to US$25Mn. in 1999.
* Reduction in the rate of inflation from 27% in 1991 to 7.4% in 1999.
* Growth in real terms averaging 5% since 1991.
* Fall in the real rates of interest.
* Stable but depreciating exchange rate.
* Improvements in physical and social infrastructure.
Other non-financial mesaures include legislation to make the Bank of Guyana more autonomous, address money laundering, set up a Stock Exchange, update the regulatory environment for the insurance industry, remove all exchange controls, modernise company legislation, and the removal of key government departments such as the Customs and Inland Revenue Departments, the Deeds Registry and the Lands and Surveys Department from the traditional public service. Not all of these measures have been effectively implemented and indeed the enabling legislation for some of them is yet to be put in place.
Despite these achievements, the economy remains too dependent on the production of raw materials, particularly sugar and rice, generally under special trading arrangements in the European market. Poverty remains a critical issue and migration still drains the country of vital human and intellectual capital.
Guyana benefits from duty-free access to foreign markets under preferential trade agreements such as the Caribbean Basin Initiative (U.S.A.), the Lome Convention (The European Union) and Caribcan (Canada). There are also special arrangements with Venezuela and Colombia. Products from CARICOM (14 member countries of the Caribbean Community and Common Market) are allowed entry free of duty. These arrangements provide scope for unlimited expansion of manufacturing activities in both new and established ventures. Such arrangements, combined with tax concessions and easily available natural resources, make it attractive for manufacturers to produce for the local and Caribbean markets as well as growing markets in the U.S.A., Canada, Europe and Latin America.
Value added activities qualify for the incentives available to the manufacturing sector.
Guyana, its beauty unspoilt, is a real tropical paradise for naturalists the world over. There are vast open spaces, savannahs, virgin rainforests, mountains, huge rivers and waterfalls, the most famous of which is the majestic Kaieteur Falls, known to be one of the highest single drop waterfalls in the world and five times the height of Niagara Falls. Guyana boasts abundant wildlife, numerous species of flora, a variety of fauna and spectacular bird life.
There is scope for investment in a number of areas including accommodation and recreational facilities, particularly in the hinterland, transport, restaurants and craft shops.
Guyana has vast forest resources, which cover over three-quarters of the 83,000 square miles land mass. This is approximately 16.5 million hectares or 76.6% of the country's total. Forest resources provide for a wide and varying range of economic, social and environmental goods and services. Investment opportunities include furniture and plywood manufacturing, toys and paper pulp.
Tax holidays for specified industries anywhere around Guyana and new locations. Zero-rate on Customs Duty and Consumption Tax on selected plant, machinery and equipment. Unlimited loss carry-forward; export allowances for non-traditional products to Ex-Caricom countries.
Large scale mining of gold and precious metals, diamonds and precious stones:
* Royalty: 5% of production or of gross revenues; * Income Tax: 35%; Depreciation: 20%; Duty and Consumption Tax Concessions: Zero rating of duties and consumption tax on all equipment, process materials and spares to be used during and in the course of surveys, prospecting and mining, by the licence holder and his contractors; except food and beverages. * Fuel attracts a 10% (CIF) consumption tax.
Allowances for expenditure on development and cultivation purposes; Duty-free importation of a wide range of machinery and equipment; Waiver on import duty and consumption tax on packaging materials for fruits and vegetables for export.
Special tax of 35%; duty and consumption tax rate of zero on a wide range of machinery and equipment and raw materials for registered companies; exemption from consumption tax on exports.
A package of incentives is available for which companies are eligible once in a period of five years. This comprises mainly duty free and consumption tax concessions for basic furnishing, plant equipment and buildings. Interior locations are accorded concessions for transportation vehicles, generators, communication equipment, boats and engines, camping equipment, etc.
No one can suggest that doing business in Guyana is easy but the incentives are surely there for many sectors although they certainly need to be updated and made more relevant for the new economy.
In many areas our incentive regime compares favourably with those of sister Caricom countries. Our private sector needs to inform itself of the facilities that are available and make full use of them. It would help them if in making their business decisions they obtain some professional advice and take full advantage of all the concessions to which they are entitled.