Constructing that Investment Code Business Page Stabroek News May 7, 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. Introduction In keeping with a decision arrived at at the Business Summit last year, the Government of Guyana in collaboration with the Private Sector Commission (PSC) has commissioned a study aimed at the preparation of an Investment Code for the country. It is being carried out under a USAID project by a foreign consultant with no prior knowledge or experience of Guyana. Could the PSC not suggest that someone with some familiarity with our legal system based on English common law and statutes either from Guyana or one of the other Caricom countries be selected for this exercise? How many reviews of our systems have failed because their principal authors were not sufficiently familiar with our laws, practices and culture? Whilst an Investment Code may appear attractive and desirable to our local private sector its construction is no easy matter and there is much doubt in legal circles that it is either feasible or possible to accommodate one within our legal system. The closest any English-speaking country comes to an Investment Code is Trinidad and Tobago which has a Foreign Investment Act which I very much doubt is what the private sector is contemplating. Surely the private sector will be concerned about the Guyanese investor both resident here and abroad. Investment codes do not exist in North America or in the United Kingdom where relevant fiscal incentive, regulatory and other measures are all addressed in specific, separate pieces of legislation. An Investment Code cannot repeat the massive amounts of laws in place to protect, regulate and encourage investment in Guyana. As we will see from the Investment Guide published by Go-Invest Guyana's incentive regime is not unattractive. Several issues compare favourably with other countries with which we compete. The Guide is a comprehensive package filled with relevant information that could be very profitably utilised by the businessperson and his professional advisers. Objectives not clear It seems that the project has not been sufficiently thought out and that the objectives are far from clear. At best an Investment Code sets out the laws which guarantee the right to own property and to the payment of compensation, the fiscal incentive regime, the regulatory provisions governing the proposed operation and the institutional mechanisms for processing applications which require incentives and permits. It is not known whether the deficiencies of the current laws, regulations and mechanisms were investigated and evaluated or indeed a clear determination made of the real problems facing businesses. Before embarking on what may turn out to be a major legal exercise these issues should have been addressed. We need to ensure that we are operating in a coherent manner consistent with broader objectives. The rationale for any exercise must at the very outset be defined: should we be moving toward widening the tax base, lowering tax rates and introducing efficiency and transparency into the system or should we be re-institutionalising tax holidays? If we consider that tax concessions are necessary to accelerate the development of any area or sector have objective criteria been defined? Are the rules clear so that concessions are equitable and are not open to abuse? Do they meet the standards of taxation such as certainty and equality? Are the policies consistent with the overall proposed developmental goals of the country or are they an ad-hoc response to popular requests? Mind and management It may very well be that part of the problem lies within the minds and management of our companies or with the procedures involved in processing applications by the relevant authorities. The accelerated rates of depreciation under the Income Tax (In Aid of Industry) Act are generous but it is the coverage of the Act that is open to criticism: the industries and sectors require review. Our tax laws have been amended to favour public companies but not a single company - including those headed by the leaders of the private sector - have availed themselves of the opportunities. There has been a range of legislation to deal with corporate and business (mal-) practices including the regulation of banking, insurance, money laundering, foreign exchange, securities and companies some of which are yet to be fully put into effect whilst others have not altered corporate culture and practice in any significant way. No single document can contain all the information that a potential investor requires to make informed judgement on business proposals. There simply is no substitute for sound legal and other professional advice. An investment code can point to the relevant legislation but any attempt to re-state them will end up in a worse state. How, for example, does one deal with the issue protecting private property? Private property is guaranteed under that supreme law of the land. Does the Code repeat these provisions or point to them? The consolidated tax legislation is formidable and complex. How will these be treated? Go-Invest is doing the best it can under its statute but how realistic is it to expect that its procedures can be prescribed and set out in some subsidiary legislation? Market economy We tend to forget that we are now operating in a liberalised market economy and provided that the activity is not illegal, no special permits or authorities are necessary. Go-Invest does not need to be approached by any person proposing to go into business except if fiscal concessions or special permits or facilities are being sought. Even as we seek to make that organisation more efficient and transparent we must be fair and judge it on the grounds of its mandate and not on what we would like that mandate to be. The Private Sector Commission is ideally placed and has the primary responsibility for ensuring that the act under which Go-Invest operates meets the objectives of business promotion and expansion, efficiency and transparency. This is certainly a matter which the private sector should be addressing without fear that it may be perceived as a criticism of any organisation or persons. The private sector should avoid falling into the common mistake of asking for new laws rather than reforming existing laws with the same objectives. Subsidies Growth of our business sector was seriously affected by policies in the seventies and eighties and there still seems to be a tendency to look to the Government to make our businesses succeed. Tax concessions are subsidies and must be used very sparingly. The best forms of tax concession are low rates of taxes and equal treatment for all taxpayers. Our export allowances of non-traditional products to extra-regional countries can reduce effective tax rates to less than ten per cent whilst first year allowances on plant and machinery for companies falling under the Income Tax (In Aid of Industry Act) amount to sixty per cent. Tax concessions are no substitute for a sound macro-economic framework and infrastructure which do not add cost to the business. In Black Bush and off the Essequibo Coast roads, water, electricity and telephone services are poor compared with Georgetown and those areas unreservedly deserve tax concessions. Areas with huge population and high unemployment such as Linden and the hinterland are obvious cases for tax concessions but this is not what an Investment Code is all about. It does not create new law per se and the mandate of the current exercise does not suggest that it will address the institutional deficiencies of the existing system. Conclusion There are of course various models of investment codes and no doubt we can benefit from the incorporation of some of their provisions into our own law(s). For too long Guyana has suffered from the negative images of Jonestown, elections in which horses and the dead voted and where elections are interminably contested. We need to transform this image. We need a crop of businesspersons with the capacity and willingness to accept that both the internal and external environments have changed and that the way they operated and did business in the past simply no longer applies. They have to accept that the role of government too has changed and therefore so has the relationship and must the expectation. By now we must realise that it is not out of an abundance of natural resources that we will achieve economic salvation but as a result of visionary, exemplary leadership, sound and empowered management, a workforce that is motivated and properly rewarded and a country that recognises that its success and destiny lie in its own hands. We need a marketing strategy where all our politicians and business persons alike, our diplomats and indeed all Guyanese feel confident that they can go out there and honestly sell Guyana as a country of political, economic and social stability and an economy that offers good prospects for all businesspersons including resident and non-resident Guyanese.