Wednesday, July 23, 2008

Could Moesely get concessions?

QAII subsidiaries waiver deals inked prior to MOU

The government granted duty-free concessions and tax waivers for hundreds of items including a printing press, five vehicles, three containers of building materials and equipment representing millions of US dollars to five subsidiaries of Queens Atlantic Investments Inc (QAII) before it had even signed investment agreements with the company.

Concessions were granted to three of the five subsidiaries, under supplementary investment agreements between the government and Global Printing and Graphics Inc – the publishers of the Guyana Times; Global Textile Guyana Inc; and Global Hardware Inc. Health Care Life Sciences Inc and Health International Inc were granted concessions under investment agreements signed with the government for developing the Sanata Textiles Complex in Ruimveldt.

According to documents which this newspaper has seen, the concessions were to facilitate the five companies’ total investment of US$28.8 million in the Sanata Complex.

Chartered Accountant Christopher Ram had questioned the items for which waivers were granted in the Business Page of the July 13 edition of the Sunday Stabroek.

Ram criticized the agreements, which “make disturbing reading for the appearance of carelessness and lack of expertise on the part of the Privatization Board, Go-Invest and the Minister of Finance.”

Stating that they were the worst agreements he had ever seen in multi-million dollar documents, he said there was no preamble linking the supplementary investment agreements to the so-called Memorandum of Understanding (MOU), which the Ministry of Finance claimed was signed in March, or to any principal agreement. The three supplementary investment agreements were signed on February 2, 2008, while the two investment agreements had been signed on August 1, 2007.

Ram said, too, that any professionally done arms length transaction would begin with an MOU to be followed by supplementary agreements as certain details are worked out and preconditions are met.

However, Ram said the revelation of the agreements did not mean that all questions have been answered since the March MOU was still a state secret.

The five subsidiaries represented to the government that their undertakings would contribute to the development of the economy. They applied for waivers of the items under “the Customs Duties (Amendment) (No1) Order 2004 First Schedule Part 111 B (1) Paragraph 11; the Value Added Tax Act (Act No.10 of 2005) Sub Section Z Schedule 1 Paragraph 2 and Table A-6 of the Principal Regulation of the Excise Tax At 2005 (Act No.11 of 2005), for tax exemption(s) and or zero rating.”

Health Care Life Sciences Inc, with the largest investment — US$9 million — applied for waivers on a list of 87 items which included one enclosed mini-van, two double cab pick-ups, one bobcat, four forklifts, 20 English strap toilet seats, 20 English urinals, 265 rolls of single core cable, a quantity of amp breakers, 300 gallons of paint, two industrial washer dryers, two industrial refrigerators, 10 computers with printers and accessories, two photocopiers, two servers, one complete switchboard system, and three fax machines.

Ram said it was not clear in the agreement what pharmaceutical products Health Care Life Sciences would manufacture that the New GPC could not do or which of the two medical companies would be granted tax holidays.

Health International Inc with a proposed investment sum of US$4.5 million has as its principal objective the establishment of an export-processing zone for pharmaceuticals, textile products and dimensional stones.

Ram said it also not known what kind of export processing zone would be established and how different it would be from the kind that the private sector has called for, for many years, which the government has ignored.

This company applied for, and obtained approval for waivers under the same conditions as Health Care Life Sciences Inc for a list if 89 items, including one truck, one enclosed mini-van, one canter, one 500 KVA generator, 360 rolls of singe core cable, 10 ceiling fixture sockets, PVC gutter, gutter brackets, drop outlets, gutter end caps, and gutter couplings.

The agreement for Global Hardware Inc did not specify what the principal objective of the company was. It was left blank but the company applied for waivers under similar condition as the two others already mentioned.

This company, with an investment sum of US$5.4 million sought waivers for the importation of three containers of roofing materials.

The fourth company Global Printing and Graphics Inc, with an investment sum of US$4.5 million, was formed with the principal objective of producing high quality print and graphics material for the local and export market. The company applied for waivers for one complete printing press (31 pallets). The Ministry of Finance had said in a statement that no tax concessions were provided for the Guyana Times newspaper which is a QA11 subsidiary which recently started up. It is unclear whether that ministry had recently decided that the concession would not be granted despite a prior intention to do so. Other newspapers which have been importing printing equipment have not benefited from tax concessions.

Global Textile Guyana Inc, with an investment of US$5.4 million, sought waivers for over 280 items including two sets of 23 white two-piece toilet sets strap, fifteen 24-inch towel bar Eiffel satin nickel, and four toilet paper holders satin nickel.

The five agreements were signed by Minister of Finance, Dr Ashni Singh, and Chairman of the companies Dr Ranjisinghi Ramroop or by a representative on his behalf and the conditions were all similar.

According to the five agreements, the government agreed to waive “customs duty, value added tax, excise tax, where applicable, for the items specified” subject to the approval of the Commissioner-General and provided that such items “will be demonstrably used for the purposes outlined in the business proposal.”

Government also agreed to “grant the tax exemption to the business enterprise (new and expansion projects only) for the period of one year beginning from the date of the signing of the agreement.”

According to the ‘notification of approval’ in the agreement, the Guyana Revenue Authority by way of letter signed by the Commissioner-General and copied to all relevant agencies, will inform the companies of approval.

According to the covenants between the government and the five companies the companies agreed to among other things, develop the businesses in keeping with the particulars of the project proposals submitted to the Guyana Office for Investment (Go-Invest); procure or provide all the investment (and other financing); create employment for specified numbers of persons in the agreement; as far as possible, acquire goods, equipment and services required as part of the operation from competitive local suppliers; obtain the relevant permission/approvals necessary for the establishment as prescribed by the local authority and or national authorities and comply with all the requirements; comply with all the relevant revenue laws administered by the GRA; and comply with all the statutory requirements necessary for the operation of the enterprise within the scope of its undertaking, as well as in relation to environmental controls and the prevention of pollution.

During the term of the agreement, officers from Go-Invest and, or the GRA would visit the business premises and inspect assets that benefited from the fiscal concessions.

The termination of the agreement is by among others things, mutual consent or by the government in writing, and the exemption cancelled or revoked without liability to the government in instances where the company failed to undertake the activities of the investment in the manner specified and without providing a reasonable explanation.

While the termination of the agreements shall end all obligations of the parties, it shall not relieve the companies in default from any liability to the government in respect of customs duty, value added tax and or excise tax exemptions or waivers previously granted.

The QA11 deal for the Sanata complex has already been beset by other controversies including the proposed granting of tax concessions to two companies which cannot be described as pioneering industries under the present legislation. An amendment to the law will have to be passed for these concessions to be lawful.

The agreement has also been heavily criticized for the manner in which the government opened direct negotiations with QA11 for the Sanata complex after a previous bidding process failed.

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