Jagdeo slams investment strategy story as one-sided
By Gitanjali Singh
Finance Minister, Bharrat Jagdeo, says last Sunday Stabroek's report on a USAID 1997 study is one-sided and does not do justice to the sequence of events which took place after the report was handed in. The report in question; 'Guyana: Proposal for an Investment Strategy', submitted in September 1997, was only released to the local private sector two weeks ago and was highlighted in a page three report last Sunday. However, Jagdeo said that Trade Minister Michael Shree Chan in October 1997, wrote to then Chief of Party of the Building Equity and Economic Participation Project, Pat Thompson, expressing the government's concerns about the study which lacked a revenue impact assessment. "They [USAID] had wanted to use the study to begin the consultation with the private sector and other groups on the incentive regime in Guyana. We said no," Jagdeo said. He said Shree Chan outlined a number of problems the government had with the report which were generic in nature. He alluded to one recommendation in the report that the government should provide loan guarantees. "If the consultants had the decency to read the fund agreement this country is committed to since 1989, they would have recognised that many of the things they were suggesting could not be done," Jagdeo said. He said as such, a revenue impact study, which was reported on extensively by Stabroek News in July/August of last year, was also done. Jagdeo noted that while the first study found Guyana's incentive regime to be lacking, the second group said that what is available in Guyana is broadly in line with the rest of the region and recommended that more generous incentives were not appropriate at the time. The article quoted largely from the executive summary of the report on the position of the consultants. "The current incentives regime is inadequate, non-competitive, non-transparent, discretionary, and discriminatory," the first study reported on last Sunday said. The study said most countries competing for private investment offer far more generous incentives than Guyana, where investors do not know in advance whether they will qualify for accelerated depreciation or reduction in consumption tax. The study was done by USAID consultants Siegfried Marks, David E. Lewis and Arnold McIntyre of IGI International Inc of the US. The consultants feel that to stimulate private investment, Guyana has to consider implementing an investment incentive law when its commitment to the IMF expires next year. Such a law, the consultants said, should clearly state its purpose and objectives and offer investors specific guarantees designed to raise the confidence to invest in Guyana. This law, they said, should offer accelerated depreciation allowances from taxable income and exemption from import duties and consumption tax on machinery and equipment which is part of a new investment or upgrading of an existing investment. They felt tax holidays for a defined period should be offered on profits generated by new investments from exports, including assembly operations for re-export. The consultants also said that write-offs from taxable income should be allowed for expenses incurred to train a company's workforce in order to improve productivity and worker skills to operate and maintain increasingly sophisticated machinery. A tax deduction, the study said, would be a greater incentive than a payroll tax to finance general technical education. The Sunday report alluded to few of the efforts made by Jagdeo since then to reform the fiscal incentive regime, including the reintroduction of tax holidays for pioneering industries. The investment strategy study comprises a detailed analysis of sector specific investment opportunities, constraints and recommendations to remove these. It acknowledged the significant progress made by Guyana in macro-economic reforms and restructuring of the economy but argued that more needs to be done to improve the investment climate for private domestic and foreign investors. The second study, which Jagdeo alluded to, also called for the fiscal incentive regime to be made simple and clear. That study said that the existing framework for the fiscal regime leaves much room for differences of interpretation and discretionary application. "This situation leads to bureaucratic delays and provides opportunities for illegal enrichment. An inevitable consequence is the accumulation of a backlog of applications which is discouraging for serious investors," that study, by Harris Jafri and Charles Montrie stated. They felt that with the exception of the tax holidays at the time, Guyana's incentive regime was "roughly comparable" to other CARICOM states. However, they said that immediately, all capital goods should be exempt from import taxes to standardise and simplify investment treatment and encourage investors. And while ruling out tax holidays, they suggested instead more generous accelerated depreciation allowances when the fiscal conditions permit. And when the two revenue agencies improve their statistical units, the consultants said, a single consumption tax rate and a free choice of depreciation write-off schedules should be offered to new investors, as a substitute for tax holidays. They agreed that the zero-rated imports interpretation/discretion, leads to delays and backlogs and hinders investment by causing uncertainty. There would be no significant revenue loss from making the system non-discretionary, they contended. These consultants also spoke of ways to improve Guyana's investment image and to finalise an investment guide and strategy.
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