Author: ChrisRam

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The Special Select Committee appointed to deal with the report of the Disciplined Forces Commission never reported

I spent Sunday morning visiting friends in Lusignan and the homes attacked in the massacre there. While I was moved by the accounts of devastation and grief and the tale of horror of those who lost loved ones, I do not pretend that I can fully appreciate the damage to the community and the trauma to the surviving close relatives. To put a father, mother and child on a sofa at 1.30am and shoot them at point blank range is something associated with the Nazis, not Guyana.

No doubt it was an act of unspeakable horror for Guyana and those responsible should pay for it. But the question is where does the responsibility end?

Since 1993, when Monica Reece was murdered and her body dumped in downtown Georgetown, citizens have been calling for action by the Government to stem the rising tide of lawlessness that was enveloping Guyana. Instead, we have since witnessed cycles of unsolved murders of a Minister of Government, a prominent media and African rights activist and hundreds of others. After each wave we are treated by the Government to the same banalities about what it will and will not do and from the opposition political parties to what the Government should have done but did not do. And there the matter would end until the next major round of murders.

Various reports such as the Symonds Report and the Disciplined Forces Commission Report were swept aside to make room for indicted New Yorker Bernard Kerik and a politically controlled and ineffective National Commission of Law and Order.

For these failed initiatives the President and his Government must accept inescapable responsibility. But they are not the only ones that are culpable. On May 16, 2003, the National Assembly set up the Disciplined Forces Commission (DFC) comprising Justice Ian Chang as Chairman, recently appointed Appeals Court Judge Charles Ramson, Anil Nandlall and Mr David Granger and Ms. Maggie Bierne of Northern Ireland who was replaced on her resignation from the Commission by Professor Harold Lutchman.

The Commission was required to “examine any matter relating to public welfare, public safety, and public order, defence or security, including the structure and composition of the disciplined forces and make recommendations generally with the view to promoting their greater efficiency and giving effect to the need in the public interest that the composition of the disciplined forces take account of the ethnic composition of the population!” The Commission handed in its report on May 6, 2004, almost four years ago.

It was a comprehensive document with some one hundred and sixty-four specific recommendations, many of which were then [and now] immediately implementable. But instead of action, the response of the National Assembly was to refer the report to a Special Select Committee with heavyweights like Mr Bernard De Santos as chairman, Ms Gail Teixeira and Mr. Doodnauth Singh from the government and Mesdames Clarissa Riehl and Debbie Backer and Messrs Basil Williams and Raphael Trotman from the opposition, all attorneys-at-law. That Committee met on ten occasions but never completed its mandate or submitted a report.

Strangely, the National Assembly did not revisit the matter again until July 26, 2007 (just remember the date for one moment) when it again passed another motion appointing yet another Special Select Committee to conclude the examination of the DFC Report. In the discussions on the July 26 motion, the most vocal critics of the government were ironically the opposition members of the first Select Committee, accusing it of tarrying while Guyana was burning from the heat of the criminals.

One of the opposition members even referred to the motion as a sad indictment of the National Assembly and the people of Guyana. How a trained attorney-at-law could find the failure by that body an indictment of the people of Guyana is surely a legal stretch but in its further confusion and dilatoriness, instead of treating the matter with the urgency it deserved, the National Assembly gave the Select Committee six months to come up with its recommendations on the recommendations.

Completely oblivious of the seriousness of their mandate and the deadline, the Committee on this occasion headed by Prime Minister Hinds and comprising Messrs. Rohee, Benn, Dr. Bheri Ramsarran, Bernard De Santos and Ms. Philomena Sahoye-Shury from the government and the same four from the opposition is yet to meet! I am therefore surprised at the statement attributed to committee member Debra Backer in the media that home affairs minister Clement Rohee is the chairperson of the committee since one would expect her to know such basic information.

Now for the significance of the date of the motion: the six months expired on the day the Lusignan Massacre took place!

At a minimum the failure of the National Assembly constitutes a dereliction of duty by all our Parliamentarians and Guyanese should accept no excuse for this gross incompetence but for which so many lives including the Lusignan 11 may have been saved. Mr. Trotman of the AFC has apologized on behalf of the politicians. To the dead and those close to them, such apologies are of course meaningless and for others the question is what next. Do the opposition parties not realise that their contribution to major crime events almost mirrors the Government’s React, talk and forget – until the next episode.

The Government bears primary responsibility for the management of the country but one of the functions of the opposition is to bring effective pressure to bear on the Government when it fails to do its job. Instead, like the Government they too seem to offer only blame and excuses.

Guyana weeps not only for those who lost loved ones but for ourselves for repeatedly putting our faith and our lives in the hands of an ineffective bunch of politicians. If after all of this we still accept facile excuses from the Government about the police, and from the opposition about the misuse of the PPP/C’s majority rendering them (the opposition) impotent, we as citizens will have only ourselves to blame.

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Kwayana did speak out

In a discussion on the Lusignan Massacre on the State-owned NCN, Minister of Home Affairs Mr. Clement Rohee lamented that he did not see Eusi Kwayana and other letter-writers to the media come out against the atrocity in Lusignan.

In fact Wednesday’s Stabroek News published Kwayana’s letter “There has been a string of atrocities coming one after another, from murder of a mother to civilians and soldiers. But none can compare with the cold-blooded Lusignan carnage of the innocent, as if some new Herod has ordered the slaughter of a new generation as part of some scheme of wild justice”.

If Mr. Rohee was honestly mistaken would it not have been proper for the programme’s host Kwame McKoy and the other panellist Dr. Leslie Ramsammy to correct the Minister particularly since they were all criticising what they saw as attempts to politicise the atrocity?

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The export allowance visited (continued)

Cost and benefits

Export allowances were introduced as an incentive for companies engaged in foreign exchange earnings, and looking at the countries where they are still available several years after their introduction, there must be some doubt as to whether they have achieved their objective. When the allowances were introduced in Guyana in 1988, the country was in desperate financial straights, the black market for foreign exchange was thriving and America Street was the dominant non-bank foreign exchange market. Things have changed substantially since then with the introduction of the Economic Recovery Programme by Hoyte and its faithful continuation by the PPP/C government. In other words the economic justification for the export allowance seems to have reduced substantially. Whether Guyana should have abolished it earlier would depend on those changing circumstances as well as an analysis of its contribution, its benefits and its costs.

Tax data in Guyana at sectoral or geographical levels are impossible to come by which would make tax policy formulation difficult indeed.

Who are the beneficiaries and to what extent does the economy benefit from the tax foregone? Such information simply is not publicly available, but from the legislation the furniture sector would surely be among the beneficiaries in respect of non-regional sales.

The direct cost of the allowance is the tax foregone against which we should consider whether the incentive was the real cause of the investment and whether efficient companies would not find it attractive to invest in, for example, value-added processing of what many consider to be among the best wood in the world, without both tax holidays and export allowances. What would be the justification for similar exemptions for shrimps and minerals (other than gold, diamonds and bauxite) which are in international demand, when the law already allows tax holidays of up to ten years, carry-forward of losses till eternity, initial allowances of up to 40% on qualifying plant and machinery as well as annual tax allowances? Anything more than those suggests that the beneficiary business is a state-financed venture in disguise.

In other words, other than for the beggar-thy-neighbour policies on tax incentives pursued mainly by developing countries, there may have been little justification for the generous concessions in the first place, concessions which detracted from the broader issue of generally high rates of tax. Instead of fixing the whole tax system we consolidated the high tax rates for some in order to give relief to others – a story replicated in so many other sectors of the economy.

Incentive rewards evasion

There are two other consequences of the allowance that are worthy of mention. The first is that it not only discourages sales to the domestic market which may not only have the same needs as the overseas market but helps to cover some of the fixed costs, therefore making the company’s export prices more competitive – a different issue from dumping.

The second in some ways stems from the first, but is also inherent in the system. Even where such a company serves the domestic market it has an incentive to ‘duck’ those sales by not bringing them into the books, thereby evading the tax which would have otherwise been payable.

Loss of respect

Guyana needs to encourage all its earners – workers as well as entrepreneurs. It can do so by enlightened policies that do not discriminate against those who can least afford it and in favour of those who can. As long ago as 1993, I presented a paper entitled ‘Tax Reform – A Vehicle for Economic Recovery,’ in which I pointed out the unjustness of the tax system and that we were ignoring the experiences of other countries in a blind pursuit of attracting businesses at any cost.

Just incidentally that paper was quoted extensively but selectively in the parliamentary debate on the VAT legislation. Not that we should underestimate the contribution of businesses in general or exporters in particular. But in relation to the export allowance, the example of Trinidad and Tobago would be useful more than just for the fact that their manufacturing has taken off since its abolition, which may only be part coincidence and part lower energy costs.

Accompanying the removal of the export allowance, that country introduced lower rates of income and corporate taxes and very directly granted 150% allowance for expenses incurred in export promotion. We should encourage exports but let us do so within good logic, fairness and international treaty obligations.

This particular column arose out of discussions on the private sector, its independence and willingness to look the government in the eye. If our entrepreneurs are unable to compete internationally without undue reliance on government and subsidies in areas where we have natural advantages such as rum, forestry and wood products, then their claim to being world class will be no more than empty boasts.

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The export allowance visited

Introduction

Note: Following the Business Page article in Sunday Stabroek (13.1.08), which criticised the way the Private Sector Commission advocates on behalf of its members, the commission reacted by a clarifying press statement, without reference to the article and in a measured tone. That statement was not only welcome but also desirable, and it would have been helpful if the Ministry of Finance too had joined in the discussion which touched on critical tax and expenditure issues – the raison d’etre of the ministry.

What was unfortunate was the attempt by Mr Ronald Bulkan (Stabroek News, 18.1.08) to engage in a purely personal attack that left little room for reason or judgment and was replete with sarcasm and bitterness unbecoming of a leader of the private sector. Mr Bulkan’s outburst arose out of a point in the article relating to the export allowance which gives substantial tax relief to all but eleven products (not services) exported to non-CARICOM countries.

Perhaps Stabroek News may wish to consider whether it is not being too accommodating of those who abuse its liberal letter columns policy to make personal attacks against others, including those who serve society, often pro bono and without asking for this and that concession from the state.

I do, however, appreciate the opportunity offered by the letter to look in some detail at the issue of the export allowance and the implications for retaining it on the books.


Origin

The export allowance was introduced by the Hoyte administration by Act No 11 of 1988 as an incentive to exporters of certain products to non-CARICOM countries giving them a tax rebate of up to 50% of profit on export sales if their exports of these products exceeded 61% of their total sales. By an amendment in 1997 the level of exemption was increased to 75% for the same level of export sales, so that if the company’s exports accounted for 100 % of sales, its effective tax rate is reduced from 35% to 8.75 per cent. Put in the context of a system in which dividends from resident companies and paid to residents are exempt from any form of tax, persons in control of relevant companies can manipulate the system so that they pay themselves small salaries and large dividends tax free. In theory, therefore, the directors/shareholders of a company qualifying for the maximum allowance and choosing non-taxable allowances and dividends over salaries will pay no tax, and the combined rate of corporate and personal tax is still 8.75 per cent.

Let us look at this in context. Take the example of an individual earning $100,000 per month or $1,200,000 per annum. At the new threshold that person must pay $260,000 in income tax, taking home $940,000. (NIS is ignored for the purpose of this point). Compare this with a company earning the same $1,200,000 of taxable profits and qualifying for the 75% export allowance. The net tax charge is $105,000 and the balance of $1,095,000 can now be paid to the directors/shareholders tax free.

It is true that the Guyana Revenue Authority can set aside a transaction if it is “artificial or not given effect thereto,” to use the words of the Income Tax Act, but there is nothing artificial about exercising one’s right to any largess offered by the tax laws. In contrast, any expenses which the employee bears to get to work, let alone equip her/himself to work is not deductible, while the all-expenses paid car the company provides the executive and sometimes their spouse is not considered taxable income of the executive, but is allowable as a taxable deduction of the company! These are just a few examples of the tax system favouring the rich over the poor, and why not only the PSC but everyone should insist on meaningful tax reform within the framework of fiscal reform.

Guyana stands alone

Under the Agreement on Subsidies and Countervailing Measures (SCM), part of what is referred to as the Final Act of the 1986-1994 Uruguay Round of Trade Negotiations, subsidies including the kind of tax credits allowed by our legislation were scheduled to end in 2002. The Doha Ministerial Conference in 2001 allowed an extension to the transition period to 2007, but subject in each case to annual review. Among CARICOM countries Trinidad and Tobago applied the original deadline and abolished their export allowance at the end of 2002 while ten other Caribbean countries including the weakened Dominica were among the nineteen countries that in 2007 sought and obtained an extension up to the end of 2008 for maintaining the export allowance. Although Barbados is among these countries it is interesting to note that over time they have significantly altered their export allowance regime, so that currently the construction and data processing services are the major sectors entitled to the benefit.

Guyana is among twenty countries listed in Annex VII of the agreement which because of their per capita GNP being less than US$1,000 could reserve their right to benefit from more than the usual extensions applicable to the other CARICOM countries. To qualify for this, however, those countries had to meet certain requirements, including annual consultations with the SCM committee to justify its case. Of the twenty countries, Bolivia, Honduras, Kenya and Sri Lanka have reserved their right to benefit from the extension despite graduating from the sub-US$1,000 benchmark.

Nothing from the official site of the WTO suggests that Guyana has conformed with the requirement for consultation and justification under the agreement and it seems that by the end of 2008 Guyana will be the lone exception among CARICOM countries to have the export allowance on its books. One expects that, not least in the interest of the much vaunted harmonisation, the other Caribbean countries which will have removed the subsidies to meet their obligations will expect compliance by Guyana. Statistics published by the World Bank indicate that Guyana passed the US$1,000 threshold and should have, at the minimum, followed the example of Bolivia and others which have taken advantage of the special provisions applicable to them.

Cost and benefits

Export allowances were introduced as an incentive for companies engaged in foreign exchange earnings, and looking at the countries where they are still available several years after their introduction, there must be some doubt as to whether they have achieved their objective. When the allowances were introduced in Guyana in 1988, the country was in desperate financial straights, the black market for foreign exchange was thriving and America Street was the dominant non-bank foreign exchange market. Things have changed substantially since then with the introduction of the Economic Recovery Programme by Hoyte and its faithful continuation by the PPP/C government. In other words the economic justification for the export allowance seems to have reduced substantially. Whether Guyana should have abolished it earlier would depend on those changing circumstances as well as an analysis of its contribution, its benefits and its costs.

Tax data in Guyana at sectoral or geographical levels are impossible to come by which would make tax policy formulation difficult indeed. Who are the beneficiaries and to what extent does the economy benefit from the tax foregone? Such information simply is not publicly available, but from the legislation the furniture sector would surely be among the beneficiaries in respect of non-regional sales.

The direct cost of the allowance is the tax foregone against which we should consider whether the incentive was the real cause of the investment and whether efficient companies would not find it attractive to invest in, for example, value-added processing of what many consider to be among the best wood in the world, without both tax holidays and export allowances. What would be the justification for similar exemptions for shrimps and minerals (other than gold, diamonds and bauxite) which are in international demand, when the law already allows tax holidays of up to ten years, carry-forward of losses till eternity, initial allowances of up to 40% on qualifying plant and machinery as well as annual tax allowances? Anything more than those suggests that the beneficiary business is a state-financed venture in disguise.

In other words, other than for the beggar-thy-neighbour policies on tax incentives pursued mainly by developing countries, there may have been little justification for the generous concessions in the first place, concessions which detracted from the broader issue of generally high rates of tax. Instead of fixing the whole tax system we consolidated the high tax rates for some in order to give relief to others – a story replicated in so many other sectors of the economy.

Incentive rewards evasion

There are two other consequences of the allowance that are worthy of mention. The first is that it not only discourages sales to the domestic market which may not only have the same needs as the overseas market but helps to cover some of the fixed costs, therefore making the company’s export prices more competitive – a different issue from dumping.

The second in some ways stems from the first, but is also inherent in the system. Even where such a company serves the domestic market it has an incentive to ‘duck’ those sales by not bringing them into the books, thereby evading the tax which would have otherwise been payable.

Loss of respect

Guyana needs to encourage all its earners – workers as well as entrepreneurs. It can do so by enlightened policies that do not discriminate against those who can least afford it and in favour of those who can. As long ago as 1993, I presented a paper entitled ‘Tax Reform – A Vehicle for Economic Recovery,’ in which I pointed out the unjustness of the tax system and that we were ignoring the experiences of other countries in a blind pursuit of attracting businesses at any cost. Just incidentally that paper was quoted extensively but selectively in the parliamentary debate on the VAT legislation.

Not that we should underestimate the contribution of businesses in general or exporters in particular. But in relation to the export allowance, the example of Trinidad and Tobago would be useful more than just for the fact that their manufacturing has taken off since its abolition, which may only be part coincidence and part lower energy costs. Accompanying the removal of the export allowance, that country introduced lower rates of income and corporate taxes and very directly granted 150% allowance for expenses incurred in export promotion. We should encourage exports but let us do so within good logic, fairness and international treaty obligations.

This particular column arose out of discussions on the private sector, its independence and willingness to look the government in the eye. If our entrepreneurs are unable to compete internationally without undue reliance on government and subsidies in areas where we have natural advantages such as rum, forestry and wood products, then their claim to being world class will be no more than empty boasts.

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A sea change in the Caribbean – Arthur goes

Introduction

In a dramatic message, one of Barbados’ most successful prime ministers and perhaps a driving force behind the Caribbean Single Market and Economy (CSME), was told unequivocally by voters this week – time for a change. Despite an enviable record of achievement over the last thirteen years, Prime Minister Owen Arthur’s Barbados Labour Party lost overwhelmingly to the Democratic Labour Party in what Guyanese journalist Dr Rickey Singh referred to as the mother of all elections.

A television journalist who comes from Arthur’s constituency on a post-elections panel discussion broadcast across the Caribbean was visibly emotional as she expressed a mixture of shock and disappointment at the loss of a Prime Minister who had won respect and admiration from his fellow Barbadians, the Caribbean people and their leaders and the international community as a straight-talking, competent leader.

Arthur championed not only the case for his country but the cause of CARICOM, and came to the defence of Guyanese after some popular anti-Guyanese rhetoric from that country’s press. His government’s loss at the polls – he himself won his constituency by a margin of two to one – at the very least will impact on the progress of the CSME and it places a huge responsibility and opportunity on the other regional leaders to keep the momentum going.

Courage

Perhaps it was his years in Jamaica where as an economist and a committed Caribbean nationalist, he worked in Economic Planning with the Michael Manley government and as Director of the Jamaica Bauxite Institute in the late eighties before returning to Barbados where he practised his trade as an economist, later turning his attention to politics. At home he is credited with having saved the Barbados dollar from devaluation against the wishes of many, including the international financial institutions and critics. They argued that with Barbados inflation running above the rate in the US, it was foolhardy to retain theoretical parity with the US dollar. It was that act of courage, defiance and the national pride in the ‘strength’ of the Barbados dollar (US$1 = B$2) that won him such admiration from his people. Equally importantly he ensured that the economy did not falter in the wake of 9/11 when the fear of flying gripped Americans and threatened the tourism sector – one of the pillars of the country’s economy. His defence of the Barbados dollar might have appeared like grass-roots economics, but the economy performed so well that unemployment reduced from over 20% in 1994 to 7% in 2007.

During that time the standard of living and the quality of life in Barbados have improved continuously and that country tops all the other Caribbean countries in the United Nations Human Development Index. For a small country with not a great amount of natural resources Barbados annoys its critics with the efficiency with which it operates, and significantly successive governments have managed to cultivate among Barbadians a consensus on national values and aspirations.

Legacy

The substantial progress made with the CSME is no doubt part of former Prime Minister Arthur’s legacy – removing restrictions on the movement of people, businesses and capital around the Caribbean. It is not the fault of Mr Arthur or President Jagdeo or indeed that hobby-horse Caricom that some of the region’s businesspersons are still reluctant to capitalize on the opportunities offered by the single market. The Trinidad business community has had no such reservations, and their operations are now evident across the region in several sectors, including finance and banking, (Republic Bank and RBTT), manufacturing and distribution (Trinidad Cement, Carib Beer, soft drinks, biscuits) and hospitality (Christian Mouttet and Issa Nicholas).

In the professions and services sector, there are a growing number of accountants and lawyers straddling borders, as are advertising agencies, architects and other service providers, and the Caribbean showed how it could perform as a unit in the hosting of Cricket World Cup 2007.

The CCJ

Perhaps the most important regional achievement of Mr Arthur, however, was to persuade his country and its legal profession to join the Caribbean Court of Justice, making it only the second country along with Guyana to make the regional court its highest court. The significance of that situation is underlined given that Barbados is perhaps the most pro-British member of Caricom and not many would have bet against cutting the ties with the Privy Council. Jamaica whose own Gleaner in 1901 (yes, 1901) had called for a regional court to replace the Privy Council, St Lucia under Dr Kenny Anthony and St Vincent under Dr Ralph Gonsalves are all yet to make that crucial commitment to the Caribbean and its jurisprudence.

The new man

Ironically, having campaigned on a platform for change, the new Prime Minister, David Thompson, may demonstrate a change of emphasis but hardly one of direction. Barbadians are notoriously conservative, and even when socialism was the wave of the Caribbean, that country regarded its socialists as a mere fringe element.

It is early days yet, and Mr Thompson will have to do some stocktaking before he can take any action.

He will be more fortunate than many politicians in other countries in that he is likely to find cash in the treasury, investors at the door and the expectations of a people who have placed their trust in him over a popular leader with an enviable record. It is hard to believe that Thompson’s party gave themselves more than a modest chance in the elections, and they may therefore have to do some quick thinking and planning before taking office on Monday.

Thompson has however signalled as his immediate priority the cost of living, an issue which challenges every Caribbean leader and which not too long ago brought his predecessor to Guyana along with counterparts from other countries with the objective of exploring ways to cut the cost of living. Very little has since been heard of that initiative and Thompson gave no hint whether he would pursue that option.

With an eye on the social conditions of his people Thompson has identified affordable housing and the improvement of health care and health facilities as some of his more immediate priorities.

It may therefore be some time before he turns his attention to Caricom affairs.

Brief honeymoon

His honeymoon may not be a bed of roses as the consequence of the slowdown in the US and other economies from which most of the country’s tourists come will pose quite a challenge. His party’s manifesto contained a pledge to cut taxes and further reduce unemployment and there is the expectation among Barbadians that these would be done within the first hundred days.

The towering image of Arthur overshadowed Thompson at home and most certainly in the region, whose writers must now be hunting for biographical information on the new leader and evidence of his views and commitment on regional issues.

Thompson does, however, have some political pedigree and he must know that Barbados and its economy have some synergy with the region which provides both visitors to and investments in his country.

Relationships, however, are a mutual affair and the more seasoned leaders would need to extend to Thompson the same kind of respect they accorded his predecessor. They will need to give him the space to find his place at his own pace and resist the temptation to tell him how to do his job.

With Arthur no longer at the head table, there is a huge responsibility and opportunity for President Jagdeo the other economist, who has responsibility in Caricom for agriculture with its implications for the cost of living. That should enable him to strike a resonating chord with Thompson.

At the time of writing, the main Trinidad newspapers had not shown any great interest in the Barbados elections, with neither of the major papers giving any front-page coverage to the results in its next day issue.

It is true that the results would have come in close to midnight, on Tuesday night, but are we serious when the region’s top selling newspapers use reports by the BBC and the Associated Press as their coverage?

Did our regional newspapers not consider the Barbados elections important or significant enough to send their reporters to cover the elections?