The export allowance visited


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.


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.

A sea change in the Caribbean – Arthur goes


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.


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.


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.


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?



The statement made by Chairman of the Private Sector Commission (PSC) in a letter published in the Sunday Stabroek of December 30, 2007 “reiterating” the position of the PSC that it wanted the government to continue the present and unjustifiable 16% VAT rate and to apply it to reforming (reducing?) income and corporate taxes has shocked not only the general public but even members of the business body for its insensitivity to the plight of scores of thousands of Guyanese. No one would argue against the need to lower the harsh rate of personal tax even after the 20% increase in the personal allowance announced by the President for 2008. But to ask that those either off or at the bottom rung of the economic ladder and consumers currently reeling from a rate of inflation not seen in this country for over a decade should finance those fortunate to own shares in companies, either shows how little the captains of industry care about their workers – let alone those too old or unable or ill to find employment or because for example they have to look after close family – or how little they appreciate the workings of the economy.

Tax rates and thresholds are only relevant to those who earn or declare taxable income. Even when the threshold was $28,000 per month, a large number of employed persons both in the state and private sectors earned less than that amount. The increase in the threshold and lowering of the tax rates would therefore bring no relief to them, nor to those who are unemployed, nor those who have just been awarded an increase in pensions taking them to $6,000 per month. Nor those in receipt of public assistance of $4,500 per month, among whom are single parents and persons medically unfit to work. Is it the considered view of the PSC that out of these princely sums, these fifty thousand persons – to use the President’s numbers – should continue to pay VAT at 16% on the flour they use, cooked foods at working class restaurants or baby foods, which the PSC now asks to be used to pay for lower rates of corporate tax and income tax for those earning relatively so much more than them?

Private sector rhetoric

Mr. Correia’s letter in which he subordinates the “increase in the cost of living [which is] on the mindset of most Guyanese at this point in time” to the country being “better positioned for economic expansion than ever before” is better suited to political rhetoric than practical reality. How could someone holding such an exalted position not be aware that for seven consecutive years from 1991 to 1997 growth rates never fell below 5.1% and the average annual growth was 7.1%? Instead of expressing concern about excessive taxation he enthuses about the “impressive” collection of taxes – a statement that even the tax collecting agency has not made.

Mr. Correia’s letter was prompted by an editorial in the Stabroek Business of 28.12.07 which questioned whether the PSC’s silence on issues having a direct bearing on businesses might have been due to a fear of reprisal or victimisation. His defence of the silence as reflecting a cautious and more mature approach to engaging the political administration raises the further question as to when the PSC came to this recognition. Was it when the President put aside his script at the 2006 GUYEXPO to lambaste Correia (as immature?) for raising the most dominant issue at the time, which was followed by an absence of contact between the PSC and the Government for several months? Since it is clearly not immature to robustly advance the cause of one’s constituents, is Correia in fact admitting that, that would be unacceptable to the Government or that the obligation to act maturely rests on one side only?

Tough questions

My concern about the lack of depth in Mr. Correia’s letter which I understand was issued with little or no consultation with members is heightened by his assertion that the PSC’s Technical Bulletin contained their analysis of the performance of the economy for the first six months. Even the Bulletin itself admits that much of its data “was drawn from the Mid-Year Report 2007 which was recently released by the Ministry of Finance”. There was absolutely no analysis and the Bulletin was essentially a rehash of the Mid-year report issued by the Ministry of Finance, tables and all.

While the Statement issued by the PSC after the meeting with the Minister in December stated that he “provided an update on recent developments in the economy and on the outlook for the remainder of the year (there were twelve days left of the year), and responded to a number of questions asked by the PSC delegation”, neither the PSC nor its Chairman would volunteer whether the meeting at which the PSC was represented by its insiders asked a single searching question of the Minister, such as why the Minister did not give the latest information on VAT collections or why his mid-year report was not presented within the statutory timeframe. Is it now part of the more mature approach not to ask why the Statistics Bureau suddenly stopped publishing monthly Consumer Price Index figures since July when the year-to-date (January-July) price change was a whopping 13.8%? Or why the Bank of Guyana has not issued its half-year report as it had done for the past several years?

Why the secrecy?

Instead of allowing the repetition of statements in circulation about the publication of important information on the economy, the private sector and indeed all who are interested in the economy need reassurance that the Ministry of Finance has not given any instructions to the Bank of Guyana (which ought to enjoy considerable independence) and the Statistics Bureau (which falls within the portfolio of the Minister of Finance) to delay the publication of information vital to understanding the economy. Regrettably, the PSC does not help its image by its failure to make available to its members or the public a copy of the letter it delivered to the Minister prior to the December meeting, raising suspicion that this was part of an agreement with the Minister.

In fact the tendency by the Government to make announcements not based on the technical work done by professionals but on what might be considered politically acceptable or wishful thinking is assuming dangerous proportions. Is it realistic to expect a Bank of Guyana which has been reluctant to demonstrate its independence to publish a half-year report that contradicts in any significant way the one sent out by the Minister?

And more troubling is the President’s announcement at his first press conference for 2008 that the inflation rate at year end was 13.9%. Sitting with the President was the Minister of Finance who came into the Government as a technocrat and who had only some weeks before announced a 12.2% inflation for the half-year, a level which according to the Statistics Bureau increased by about 1 percentage point in July, taking it to over 13%. Would the Minister or the Statistics Bureau tell the President that neither time nor inflation has stood still since the end of July? The President’s statement can create a huge problem for the Head of the Statistics Bureau Lennox Benjamin if the results of the professional work of the stats Bureau were to come up with numbers that are significantly different from those announced by the President.


It goes without saying that the PSC and its leadership ought to be mature but for them to overlook key issues in order to be accepted as engaging the political administration would betray a sad obsequiousness. Tax rates are indeed a critical issue but what the PSC seems to be unaware of is the extent of the difference between nominal rates and effective rates of tax paid by companies and the self-employed.

Some time ago I surprised a key policy formulator with data that showed that the effective rate paid by a particular sector was just half of the 45% nominal rate, a situation which is unlikely to be an aberration or unique to that sector. Then there is the extensive regime of tax holidays under the Income Tax (In Aid of Industry) Act, particularly since the amendment to that Act in 2003 or the several tax and other concessions that are given to a wide range of companies which are exploiting our natural resources for doing us the favour of paying our nationals wages that are well below international average. And can we ignore that huge body of taxpayers who continue to cheat the system and resent any attempts to bring them into the net?

Mr. Correia may not be aware that Guyana has an extremely attractive regime of export allowances which is probably a breach of the WTO Rules and which has long since been abolished by some regional countries including Trinidad and Tobago. Or he may be conveniently ignoring the fact that our tax laws treat unearned income and capital gains more favourably than the income earned by employed persons. And that under former President Desmond Hoyte the estates of those who spent their lives evading taxes were relieved of any death taxes, while removing such pro-poor allowances like child allowances and mortgage interest.

It is unlikely that the PSC would be interested in reversing the anti-poor, pro-rich nature of the tax laws but should the Government and labour not be interested in at least drawing attention that it cries out for action? What the PSC should be interested in however, even at the risk of being considered immature, is to hold the Government to its commitment to make VAT revenue neutral and point out the inconsistency of the Government’s position on this commitment. Surely the PSC cannot forget the President’s words at the GUYEXPO 2006 when he said “We said from the very beginning that VAT should be revenue neutral, we’re not looking to increase the collection of taxes, increase [taxes or] the tax base with the introduction of this tax.” Now that the money has poured in by more than even critics had predicted, the tune has changed to “VAT is revenue neutral but the increased collection was mainly attributed to the expansion of the tax base“. (Italics in this paragraph mine).


Of course, the commitment that VAT would be revenue-neutral was made to the country at large and it is the entire country that should insist on the Government honouring that commitment. But the PNC-R now hardly pretends to be an effective opposition and the labour movement is struggling for its existence, let alone its independence leaving a few individuals, Red Thread, the consumer group led by Eileen Cox and political leader CN Sharma to raise their voices against the harsher elements of the VAT.

If the PSC wants to reiterate anything it should be to demand meaningful tax reform and proper expenditure management. If it does not do so urgently it will find or indeed is already finding – to borrow from Murphy – that expenditure expands to meet the revenue collected from VAT and other taxes.

An underlying failure of the PSC over the years is partly the result of the serious conflicts facing its leaders as they seek simultaneously to further the interests of their often private businesses and the wider interests of their constituents. Unless private sector organisations change the rules of disclosure of their company’s interests in matters with the Government while ostensibly negotiating with it, give their CEOs a more leading role in advocacy (remember Pat Thompson?), promote more openness and transparency and strengthen the quality of their leadership, they will continue to find that they can only engage the government on its terms, and those will seldom coincide with the interests of the PSC’s constituents.

Wanted: Charities and NGO legislation


As civil society in Guyana has taken – or rather been given – an increasing role in public-spirited tasks such as fighting floods, AIDS, poverty and discrimination – perceived and real – providing legal aid or cheap meals for the poor, those civil society organisations seeking to formalise and institutionalise themselves face more than the usual challenges of resource limitation and fundraising. Despite the fact that many of these organisations are in fact doing or complementing the work of the state, they come up with one formidable hurdle which could be so easily removed by the state. The sad fact is that there is no legislative enabling environment for the promotion of civil society, while the tax laws effectively discourage giving and fundraising through creative business initiatives. Just consider how the tax laws would treat a not-for-profit entity that decides to carry on a business to raise funds to be used exclusively in financing its charitable work. The laws will treat the surplus on the business in the same way as it would any for-profit organisation, while disallowing the expenditure on the charitable activity as not being “wholly and exclusively incurred in the production of income”!

By contrast, countries ranging from Azerbaijan and Afghanistan to Malta, Mexico, Uzbekistan, Venezuela and Zimbabwe have either enacted or advanced legislation to facilitate that type of entity known by such names as non-governmental or not-for-profit organisations. Guyana therefore lags behind all these countries in NGO/civil society legislation which for all practical purposes is simply non-existent, although the reality is less clear, certainly more confusing and does not lend itself to simple determination.

State of uncertainty

The Civil Law Act of Guyana passed in 1916 provides that the law relating to charities shall be the law of England. The problem is that the charities law of England has changed beyond recognition since 1916, and indeed, as recently as 2006 the House of Commons consolidated and updated the law into the Charities Act 2006. That act defines charities by reference to the provision of benefits to the public over some thirteen purposes, including the arts, education, health, animal welfare, sports, environmental protection and the promotion of human rights, and makes comprehensive provisions for such charities. It is unlikely that anyone would suggest that English charity law would now apply in Guyana, but that itself is a strong reason for our own National Assembly to fill this yawning gap in our legislation.

One of the results of this failure is the perennial question that often confronts the person considering the establishment of a not-for-profit organisation – whether to go the route of the Companies Act 1991 or the Friendly Societies Act Cap 36:04 of the Laws of Guyana. For the benefit of all those persons called on to make the decision, this column compares in a simple straightforward way these two principal pieces of legislation for their suitability as the appropriate vehicle to carry out their business as NGOs. Another vehicle, the Co-operative Societies Act, is excluded, since only societies for the economic advancement of their members may be established under that act.

Friendly Societies Act

Companies Act 1991

1. Scope

Limited to the types of society specified, or extended by Minister

Generally unlimited

2. Regulator

Registrar of Friendly Societies

Registrar of Companies

3. Minimum Fees to Registrar


Approximately $30,000

4. Role of Minister in establishment

May limit the application of the Act


5. Minimum number



6. Age limitation

Under 16 not allowed

Anyone can be a member but an incorporator must be at least 18

7. In case of refusal to register

Appeal to Minister

No provision

8. Legal Status

Body Corporate

Body corporate

9. Whether branches are permitted



10. Constitution

Must contain provisions relating to matters in Third Schedule of the Act

Must meet the requirements of the Companies Act but otherwise may contain any other provision

11. Audit

Must submit accounts to Registrar for audit or other person appointed to audit

Audit by person holding a practicing certificate from the Institutes of Chartered Accountants of Guyana

12. Reserve Fund


No requirement

13. Investment of surplus funds

Government or Post Office Savings Bank or Commonwealth Government or Land + Buildings

No restriction

14. Ability to Enter into Contracts



15. Loans

Must be out of separate funds established by contribution

Subject to rules set out in the Companies Act 1991

16. Taxation on Income

Automatic exemption under the Corporation Tax Act

Fully taxable unless expressly waived in a Tax Act or subsidiary legislation

An unsatisfactory winner

It would seem that there is a compelling case for organisations whose objectives fall within the Friendly Societies Act to register under that act rather than the Companies Act.

It is true that there have been far more complaints about the administration of the Friendly Societies Act compared with the Companies Act and that there is considerable scope for ministerial intervention under the Friendly Societies Act, but it is also true that there has been little evidence of any minister acting unreasonably under the act, rendering any fear baseless.

This however is not a reason for our legislature to continue to ignore the need for specific charities and related legislation that takes account of the increasing role and contribution of such organisations in the social sector in Guyana.

Such legislation ought to take account not only of the entity in its role as provider of charitable services and as a recipient of donations but also of the contributors – individuals and corporate – to such organisations.

For example, individuals who no doubt represent a significant element of total contributions can claim no deduction for any donations made for any charitable or public purpose.

On the other hand, companies are allowed to deduct donations under Deeds of Covenant and those made to the Government of Guyana for public purposes or to any prescribed organisation of a national or international character.

The retention of the status quo represents an insensitivity that is clearly undesirable and counterproductive.

Next week: The Private Sector Commission’s amazing position on the Value-Added Tax.