ChrisRam.net

Introduction
In the absence of a Ministry of Planning and Development, the Ministry of Finance takes on immense importance. I therefore publicly greeted the announcement of Dr Ashni Singh as Minister of Finance not as a fellow accountant with training in accountability – of course – integrity, competence, capacity for hard work and an independent streak, but as one who would be confident enough to control expenditure, rein in President Jagdeo’s capacity to ignore the strictures of the constitution in relation to the Lotto funds or to spend first and seek approval after, evident with the frequency and value of supplementary provisions requested in the National Assembly.

More than even the Ministers of Trade or Agriculture, the Minister of Finance is the point person with the private sector, and by his action and even pronouncements can directly affect investments, jobs, performance of the economy, interest and exchange rates and share prices. He is the subject minister for the NIS, the Bank of Guyana and the Guyana Revenue Authority (GRA), appointing their boards often with people of his choice and under his influence, and responsible for the Companies Act and a raft of other legislation. He decides who gets tax holidays, budget allocations (or not), and how insurance companies and financial houses are regulated. His knowledge of the tax laws, their role and operation informs his determination of not only the level of taxation in the country but also the fairness of the system and how the burden is borne by various segments of the tax-paying public.

The overflowing VAT
In the period since Dr Singh’s appointment in September 2006, he has tested the public’s confidence in him in critical areas with his relationship with the private sector and civil society often being at best, polite. In both years following his appointment, he not only broke with tradition but with the implied constitutional requirement (Article 13) to engage stakeholders in pre-budget consultations. He failed even to acknowledge a request by the women’s group Red Thread to meet him on the effects of VAT on women in particular. He did not correct a misleading date (September 15, 2007) on his 2007 mid-year report presented to the National Assembly in November 2007 despite this being drawn to his attention and it reported to have been behind related delays in 2007 by the Bank of Guyana and the Statistical Bureau to publish important information on the economy.

In his first full year as minister the National Assembly rubber-stamped some of the most expensive supplementary provisions ever made in the country ($18 billion), witnessed an unacceptable level of budget under-statements on revenue with VAT alone being under-budgeted by 76 % and the combined effect of two taxes that were supposed to be revenue neutral (VAT and Excise Tax) being under-budgeted by 48%.
The consequence of this was the steepest single year rise in the tax burden this country has witnessed for as long as statistics are readily available (see table below) and a massive 10% increase in the 7-year period 2000 -2007, putting Guyana in the league of rich countries despite the government’s inability to offer the poor and the unemployed basic assistance, or citizens, security, and the continuing flood of migration to any country that Guyanese can enter – legally or otherwise. Amidst all the confusion caused by some misleading statements on VAT from government spokespersons and the Guyana Revenue Authority, the Minister stayed behind a wall of silence. That silence was extended to the saga of the QA II concessions until his ministry responded to increasing concerns expressed by the public.

Tax to GDP ratio – selected years 1992 to 2007

1992     1996     2000     2004     2007

42%        40%          37%         40%         47%

Source: Ministry of Finance National Estimates

Intervention
The intervention came in the form of a wordy four-page clarification from the Ministry of Finance on June 15 and a statement issued through GINA on June 16 responding to a Stabroek News article on the QA II saga on the same day. The clarification restated the government’s commitment to openness and transparency, claimed that fiscal concessions are rule-based and not discretionary, recounted the recent history of the law on tax holidays and sought to blame the saga on poor legislative drafting.

An examination of the statements, however, shows that they are misleading in terms of how the law is applied. The Minister had played a role in the QA II saga wearing several hats, some of which would have involved obvious conflicts and at least wearing one of those hats he should have realised that the law as passed and assented to by President Jagdeo did “not reflect Government’s intent.”

While it is true that the scope for tax holidays is limited to geographical regions and particular types of activities, it is far from correct to suggest that the tax holiday laws are not discretionary. The relevant section of the Income Tax (In Aid of Industry) Act quoted in the clarification provides only “that the Minister may grant an exemption from the Corporation Tax,” which can hardly be considered mandatory. Did the Minister and Cabinet restrict their consideration of the tax holiday provisions to Corporation Tax as the law provides, and not to income tax? In other words, did he give any preferred hotelier or other non-incorporated entity any tax holiday because it was “pioneering” and would he say what authority he used for doing so?

A stretch
Under the claim of transparency the statement refers to “substantial information on tax exemptions” included in annual reports of the Guyana Revenue Authority. It seems a real stretch to consider a total figure as “substantial information” when the quantified information applies only to concessions by the Customs and Trade Administration in respect of goods imported by or for a pot-pourri of products or sectors. There is no information on the beneficiaries of tax holidays and on any Income, Corporation or other taxes remitted.

While the President on the occasion when he castigated Mr. Yesu Persaud spoke of the concessions in the past tense, the Ministry’s statement confidently states that the QA II concessions are subject to approval by the GRA and the Ministry of Finance [sic]. Are we to believe that a matter taken to Cabinet in May 2007 had not been approved one year later and that the company would have proceeded with their multi-million dollar investment only with “subject to” approval?

The statements also tell us that the Minister is Chairman of the Privatisation Board which made the recommendation to the Cabinet of which he is a key member and that the decision by Cabinet was subject to approval by the GRA and the Minister of Finance – confusing to most ordinary minds. Since as the “clarification” states that “Cabinet’s decision is the definitive authority for subsequent decisions and actions,” do the GRA and the Minister have any discretion in the matter, whatever the law says to the contrary?

Pass the buck
But placing the blame on the framers of the 2003 legislation raises further questions. At the time of the 2003 legislation Dr. Singh was not only the Budget Director in the Ministry of Finance and should therefore have been concerned about the legislation’s potential revenue impact, but he was also a member of the board of the GRA as a nominee of the Ministry of Finance and in that capacity too should have perused the legislation both for impact and flaws. Yet it has taken two years after granting concessions under the act as Minister, before there has been any acknowledgment that the act is flawed.

The ministry’s statement also sought to place, incorrectly in my view, the concessions for QA II on the same level as the Berbice bridge for which there is separate legislation passed subsequent to the 2003 legislation (Act 3 of 2006), specifically exempting the income of and dividends and interest paid by the concessionaire from corporation, income and withholding tax, and income earned by contractors and subcontractors to be exempted from income tax for the concession period.

Given the confusing statements made by spokespersons who are either expected to know or apply the relevant laws, the proposed seminar on privatisation and fiscal concessions to be hosted by the Privatisation Unit (of the Ministry of Finance) on July 9 becomes all the more necessary, and it is clear that the list of participants should be widened. Moreover, while it is never good to hold up applications regarding investments it may be preferable to place such applications on hold pending corrections and clarifications.

Conclusion
But there is one final issue that neither the clarification nor the statement addressed. Under section 38 of the Investment Act 2004, concessions granted under the section of the Income Tax (In Aid of Industry) Act dealing with tax holidays require a procedural audit by the “Auditor General or any suitably qualified person” designated by him. The only professionally qualified accountant in that office is the wife of the Minister of Finance, which potentially could unfairly place her in the unenviable position of being associated with adverse comments on concessions that her husband would have granted. Whatever opinion is issued by the Audit Office and whatever Chinese Wall may have been put in place, this is a most blatant case of conflict of interest in a most important function of the country’s administration. The respective functions simply cannot co-exist and the Public Accounts Committee should immediately step in to end it.

Next week: BP turns its attention to the operations of the general tax laws under the watch of the President and the Minister of Finance.

Introduction
If we look across the Caribbean we see a number of companies that have extended well beyond their borders with Grace Kennedy, Republic Bank and Trinidad Cement being very prominent, burnishing their Caribbean credentials by cross-listing on the regional stock exchanges. Perhaps reflecting their growing confidence and strength, Trinidad and Tobago companies appear the most enterprising as their domestic market becomes more saturated forcing them to seek new opportunities and markets abroad. With the USA’s plans to follow International Financial Reporting Standards in place of US GAAP it may not be long before we see a Caribbean company seeking listing on a US stock exchange.

Where does Guyana stand among Caribbean companies having established one of the early companies (Banks DIH) to have gone into wide public ownership and with veteran entrepreneur Yesu Persaud regarded as one of the leading private sector persons in the region?

It seems not very far, defying all the hopes that the launch of the Guyana Stock Exchange and a very favourable tax regime for public companies would see an increase in the number of companies listing on the stock exchange, raising money from the public and providing the platform for take-off.

Going private
Instead the relationship between the Guyana Securities Council and leading public companies is at best strained; no company has yet listed and the quality of corporate governance is still strained. In fact, with public companies such as Guyana Stores, JP Santos and Hotel Tower Limited coming under limited personal or family control, it would probably be truer to speak of ‘going private’ rather than ‘going public.’

It may have been pure coincidence that Banks DIH was again in the forefront among local companies to have offered a significant share to a foreign company – Banks Barbados – although the purpose may have had little to do with regional co-operation. It is difficult to say how beneficial the move was to the company as a whole, but it was both bold and novel to see truly outside directors with real clout being placed on the board of any public company in Guyana.

The other major public company with wide-shareholding – DDL – has not only not done well in its overseas ventures, but many of its new ventures have been as private companies not subject to the higher standards of transparency and disclosure applicable to public companies. Worse, the company like so many of its counterparts seems to take the approach of the goldfish, unable or unwilling to see any wart that would restrict its own development, no matter how obvious to even the most casual observer.

Of course the government has abandoned its commitment to widespread public ownership and Guyanese can only dream of a stake in any of those companies which are being given all sorts of goodies to ‘encourage’ them to risk exploiting our natural and sometimes non-renewable resources. While we ask the government to comply with the Investment Act in relation to local private sector companies, we should not lose sight of the danger of worse excesses taking place in relation to foreign companies. These deals which can bind the country for decades should be tabled in the National Assembly in the interest of transparency and to reassure those investors.

Competing at more than cricket
But back to our private sector companies and whether they have what it takes to compete regionally and internationally to take on and beat the Bajans, Trinis and Jamaicans, like we do in cricket – at least some of the time. GBTI is a sound financial institution that can move outside of the Guyana market, but nothing that the directors have said suggests that they are thinking in that direction.

What a boost it would be for Guyana to hear that our own GBTI has taken majority control of another regional financial institution. Or that Bakewell – a private company – has moved into another market. Indeed these are legitimate questions to any entrepreneur who laments the domestic business environment.

Seeking answers to these questions I turned to my favourite and best-selling business book, Built to Last: Successful Habits of Visionary Companies by Jim Collins and Jerry I. Porras, which was followed up by a solo effort by Jim Collins: Good to Great: Why Some Companies Make the Leap . . . and Others Don’t.

Included in Built To Last, are eighteen companies the authors identified as a “visionary company,” defined as one that is a premier institution in its industry, is widely admired by knowledgeable businesspeople, made an imprint on the world, had multiple generations of chief executive officers (CEOs), had multiple product/service life cycles, and was founded before 1950.

Good habits
In a summary of the book the Vance Caesar Group, ‘Premier Leadership Coaching,’ identified as the key question which Messrs. Collins and Porras sought to answer as “what has enabled some corporations to last so long, while other competitors in the same markets either struggle to get by, or fade away after a short period of time?” Collins and Porras took as their benchmark 18 well-known, well-established and healthy companies (‘visionaries’), and compared them to a counterpart in their specific area of business using as yardsticks common patterns and differences between their company and the counterpart. The result was a set of guidelines and principles that all companies, large or growing, can use to keep themselves growing, strong, and ahead of the competition.

Here are the outstanding features of companies that are built to last.

Clock builders, not timekeepers – They are focused on building the organisation so it would run “as smooth as a clock.” Visionary companies lead, not follow – build not watch the clock.

Have a set of core values – They began with a set of core values that persist and are practised at every level in the organisation, in good times and bad.

Have a core ideology - While the core value stays the same, the core ideology changes, preventing the company from being left behind and eventually disappearing. This is not the same as responding to every fad that comes around and usually takes place slowly, but fast enough to keep ahead of the competition.

BHAG (Big hairy audacious goals) – Not all shifts are incremental. Companies that are built to last periodically undergo paradigm shifts in products, and have clear-cut, compelling, cutting-edge goals the company sets to climb the next mountain.

Have a ‘cult-like’ culture - Everyone in the company must commit to the same core ideology, must be indoctrinated into the company culture, must develop a tight fit with others in the company, and must think of themselves as the ‘elite’ in their field.

Don’t be afraid to evolve - Visionary companies monitor trends, do their research and anticipate and even create changes. They do not wait on the market or on some other visionary before making their move.

Look inside for top management – Visionary companies have management development processes and succession plans in place to ensure smooth transitions and direction as the company ages. It is not unusual to find a defined succession plan that is more than one level deep, capable of responding to the most dramatic shock without any noticeable disruption.

Constantly innovate – Without this, the company’s products/services become obsolete and lead to a decline.

How have BTL companies fared?
Are the companies identified in the book still considered “Built to Last”? The answer depends as always on who is asked. Converts to the ‘Book,’ which they spell with a capital ‘B,’ would point out that every one of the 18 companies cited is still in business, is still a household name doing what they were doing decades before. Taken as a basket, these companies are also doing quite well in terms of total shareholder return, even though the writers themselves say that the companies were not selected on the basis of stock market performance.

Cynics not only point out that the shares of Motorola and Sony have lagged on the S&P 500 Index while Disney has taken a long time to recover from a long slump, but that the test was so widely framed as to allow too much latitude. At least 7 of BTL’s original 18 companies have stumbled, prompting the question, have companies struggled because they ignored the principles in the book or because they followed them?

Of more direct interest is the book’s relevance to our own entrepreneurs who are mostly self taught in the school of entrepreneurship, and whether the principles that may have contributed to the success of mainly US companies can be applied to Guyana where the business culture seems so different from the Caribbean, let alone the USA.

If Guyana is to compete then our companies – big and medium-sized – would need some paradigm shift in how they see their businesses. How our entrepreneurs respond will shape the Guyana economy for the next few decades.

Next week: Business Page’s response to the statement by the Ministry of Finance on the Queens Atlantic II Group and related matters.

It is heartening that Dr. Ashni Singh, the Minister of Finance has finally addressed the Press on matters concerning his Ministry, even though he was less than forthright on the matter involving the President, Mr. Yesu Persaud and tax concessions.

I am writing to pose publicly to Dr. Singh two straight questions: 1) Is he aware that had the rate of VAT been correctly computed prior to its being set into law, the standard rate would be less than 16%?

2. Would Dr. Singh now be equally prompt in reducing the rate - which incidentally he can do on his own, subject only to an affirmative resolution of the National Assembly?

I would appreciate a timely response from Dr. Singh.