Business Page – August 20, 2000

The Uneven Hospitality Playing Field

Introduction

Small societies throw up agonizing contradictions for commentators, journalists and professionals. The problems are compounded when one is acting in more than one of these roles, wearing two hats as it is sometimes put. In a given situation or role one can find oneself on one side of an issue. Then in another, it is not unusual to find that one is almost forced into quite the opposite position on the same issue. How can such actual and apparent conflicts be reconciled, if at all? Does one take a position in one role and ignore the other or abstain from both?

This dilemma becomes even more acute in Guyana where everyone attributes to others sinister, ulterior motives whether of vested or self-interest, profit or self-promotion. Yet often it happens that only those with some interest are informed enough to address issues in which they are directly involved. Some cases may be more general than others involving national rather than sectoral issues. Or it may pit one’s professional role against one’s religious or personal values.

Should a woman attorney who is also an activist in child abuse matters for example rigorously cross-examine a five year old in the interest of defending her male client accused of rape? Should a professional accountant who deals with the tax authorities in his professional work comment publicly on wider taxation issues at the risk that those comments can so easily be taken as personal criticism or, heaven forbid, cause one’s clients to be subject to a greater degree of scrutiny than might otherwise be the case?

Does that mean that Business Page should avoid addressing tax or business issues in which its contributor has a professional interest whether direct or indirect assuming that no professional confidences are breached? In the hierarchy of responsibilities, which takes precedence: religious, public, professional or personal interest? And what about the situation in which the public interest may operate to the detriment of one’s client? Does being selective or inhibited in the issues addressed by public commentators not amount to self-censorship which compromises integrity?

It has actually been said to this writer that you cannot run an accounting practice and be a critic, no matter how constructive, or you jeopardize the future of your business. Should public interest matters be subsumed by professional or business success? This is a problem many of us must wrestle with and this article once again presents that dilemma.

Competition

Every businessperson should welcome competition. It prevents complacency, provides challenges and enhances performance. Yet no matter how courageous the businessperson, he will find that he is at a serious disadvantage when the competition is unfair and the playing field uneven. This is a comment/complaint which we often hear from our businesspersons particularly in relation to special concessions granted to foreign investors operating in Guyana or goods “dumped” in Guyana for sale at prices against which our own cannot compete. Sometimes the unfair competition comes from the State such as GTV’s competing against private television houses or the GDF competing with private aircraft operators. More often than not these criticisms have more than academic substance. They are real threats to the success of the domestic entity, jobs, taxation and the economy as a whole.

Yet sometimes subconsciously and at other times quite intentionally the same business persons perpetrate the same behavior and business practice of which they complain. It is as though their lament is founded not on some principle but responds to threats to their profitability and survival or from self-interest. My own experience at the Hotel Tower has emphasised the extent to which the playing field has been made uneven and placed some players at considerable disadvantage.

But as this piece will show the problem is far more widespread - indeed it is pervasive in many areas of activities in Guyana and comes in all forms. What is worse is that the Government by some of its purchasing policies is contributing to tax evasion and the inequity of the playing field which has had a detrimental effect on some of its own ventures including Guyana Stores.

Georgetown Club

The Georgetown Club, one of Guyana’s oldest clubs having celebrated its centenary about four years ago is arguably the most exclusive and prestigious club in Guyana. Admission is by balloting and “one voting paper to reject, to three voting papers to admit shall exclude a candidate.” Not surprisingly therefore its membership constitutes the “cream” of Guyana society. It is also a businesspersons’ club that offers members and guests the right environment for business dining.

It is supposed to be a members’ club catering to the needs of its members. Yet recent publicity suggests that it does much more than this. It carries on “trading or business” in the most blatant fashion but manages to escape the tax net even though it includes among its members persons who must be aware that the Club does business with more than just its members. If we look at some of the recent activities held there we see on the list cocktails by Universal Development Company Limited, annual general meetings by Citizens Bank and Sterling Products Limited and perhaps most significantly a seminar by the Guyana Revenue Authority. The Club offers to members and temporary members accommodation in thirteen rooms. All this is fine and the directors of the Club should be complimented for the standards which they have managed to maintain and their entrepreneurial spirit. But the Club appears to enjoy tax concessions which its competitors do not.

There is a principle in taxation (called mutual trading) reinforced by cases that have come before the Courts in several jurisdictions that a person cannot make a profit out of himself. By extension clubs and other incorporated associations and indeed incorporated entities such as the Georgetown Club which have activities which amount to trading but which have no dealings with outsiders cannot be said to have made a profit for tax purposes. While such transactions can amount to trading the surplus resulting is not to be treated as a trading profit, a principle established in the case Cornish Mutual Assn. Co. v. C.I.R. On the other hand the authorities are quite clear that if a club has receipt from non-members, such as green fees, any profit there from is taxable: see Carlisle and Silloth Golf Club v. Smith. On the same principle a political organisation which published a newspaper for which members subscribed was held liable in respect of advertising revenue.

The same golf club case referred to above also established that by temporary members subscriptions and green fees were not of the same nature as the subscriptions of full members and constituted assessable income in the hands of the club. It is apposite to note that in order to use the hotel facilities of Georgetown Club a person other than a member must become a temporary member whose membership according to the rules of the Club is for the period of residence only. This is clearly artificial and the Club has been allowed not only to escape taxation on its profits but to compete most unfairly with legitimate businesses which have to pay taxes undercutting them by a significant price differential. The arithmetic is quite simple: for every $1,000. surplus earned by Georgetown Club a tax paying hospitality entity must earn $1,538 to arrive at the same net position.

In the context of the statutory provisions in Guyana, the Corporation Tax Act specifically provides that exempt income of any ecclesiastical, charitable or educational institution does not extend to income derived from a trade or business carried on by the institution. It is difficult to find justification for the Georgetown Club remaining a non-tax paying entity when a significant portion of its revenues are derived from commercial activities.

Hotel Accommodation Tax

Another loophole (facility?) in the law which Georgetown Club and some other hotel operators exploit or benefit from is the exemption from the Hotel Accommodation Tax of “a group of buildings comprising not less than sixteen bedrooms.” Georgetown Club happens to have only thirteen rooms and its guests, sorry temporary members, are not charged the 10% room tax payable under the Act. The industry also has as one of its prominent players a group of managers which manages facilities which individually are less than sixteen rooms but in aggregate amount to considerably more. The sixteen room and above facilities including Le Meridien, Hotel Tower and Ocean View contribute substantial sums to the Government but which do not necessarily go to the development of the sector, despite references to that policy when the legislation was first considered. This is almost a free ride by the so-called small operators which many countries depending on tourism do not encourage. Indeed in several of those countries the exemption applies to far fewer rooms.

These practices make it difficult for others to compete whether in terms of price or service and cry out for action by the tax and tourism authorities if we seriously want to promote tourism. But it is not only the authorities which have to do something. The Chairmen of GA2000 and Banks DIH rightly call for the application of the law and an even playing field not only in relation to protecting their own products but to business generally. The Chairman of Sterling Products Limited is also a director of Hotel Tower but must have agreed with the decision to take SPL’s meeting to Georgetown Club. While not wanting to appear to favour an entity on whose Board he sits, using another tax-paying entity would have resolved this dilemma appropriately. Businesspersons should support legitimate businesses because they must realise that by supporting non-taxpaying entities they contribute to the continuing narrow tax base which means that the burden of taxation is unfairly borne by that narrow base.

Georgetown Club has among its active members leading figures individuals including government ministers, judges, professionals and businesspersons who would not want to be seen to be associated with measures that could be construed as at best skirting the tax laws. Surely they do not condone or engage in such practices in their own tax affairs so why do it so publicly? Perhaps a lack of awareness or consciousness is responsible as conversations with several individuals revealed, but the problem is becoming a pervasive threat to the tax base and a disincentive to investment.

Christopher Ram is a member of the Georgetown Club and Receiver-manager of Hotel Tower Limited.