Business Page August 19, 2001


The Investment Code and Mr. Toolsie Persaud

 

Introduction

Replete as ever with contradictions, just as the Investment Code is tabled in Parliament to provide comfort to investors, the impending acquisition of the Water Street land of Toolsie Persaud Limited is being hotly contested. The government considers that it needs the land to resettle pavement vendors who by virtue of a Court ruling must clear out from the areas they now use to ply their wares.

The Preamble to the Investment Code states that the Government has prepared it " to provide a level of comfort to investors, which in addition to the existing Investment Guide brings together the incentives, the regulations, the facilitation and the protection of private capital, both domestic and foreign." It also includes among its objectives legal protection for investment, promoting the development of international best practices regarding investment and providing a framework for fiscal incentives for investors.

Whether the Code actually achieves this in its six pages is doubtful and the entire status of the document is uncertain. It is undated, the ownership is unclear and there is not even an indication of who tabled it in the National Assembly although Go- Invest is identified as the responsible agency.

Background

In early 2000 the Private Sector Commission had requested assistance from the USAID/GEO Project in drafting a new Guyana Investment Code. The impetus for this exercise resulted from the October 1999 Presidential Summit with the private sector. The GEO/Project retained international investment specialist Dr. Donald Lecraw who with assistance from Legal Draftsman Mr. Brynmor Pollard submitted the proposed Guyana Investment Act. The objective of formally incorporating the Code in legislation was to give legal recognition to its contents rather than to treat it as a statement of policy which is the best interpretation of the current document. The Code indicates that 'the Government shall publish an investment guide with full information on fiscal incentives granted to specific sectors". Minister of Tourism, Industry and Commerce, Manzoor Nadir, is confident that the rejection of the concept of legislation is not intended to be a downgrading of the Code but to make way for more detailed work to be done on the Investment Guide and to allow the Government more flexibility in dealing with matters of trade, business and investments.

After all the criticisms of its past performance, citizens had higher expectations of the current Assembly and the manner in which this Code finally reached the Assembly would have been a major disappointment to the private sector in particular.

Controversy

A number of the more controversial provisions in the draft Act have been excluded such as that on national treatment which required that nationals be given incentives no less favourable than foreigners, the right to hold bank accounts denominated in foreign currencies, tax rate stability and reservation of certain sectors for domestic entrepreneurs only. The draft had also sought to reduce the discretionary powers of the Minister in taxation matters; provide rules on "thin capitalisation" or debt/equity ratio to put some form of cap on borrowings; establish by way of priority lists classes of investments which would be one of the determinants for tax holidays and other incentives; introduction of investment tax credits and restriction of loss carry forwards to five years.

Despite its interest and role in the events leading up to the Code the private sector has been noticeably silent which in Guyana is a sign that it is not too impressed. The media too have paid little attention to the Code and it would have been useful to obtain the views of potential investors and, for the future, to monitor the impact the Code has on new investments.

Private Property and huge profits

The Code restates the constitutional provision that private property may only be acquired by the Government for public purposes. It also provides for prompt and adequate compensation and the right of access to the High Court. The Government has restated its commitment to keep the court-appointed deadline of September 1 for relocating the Water Street vendors to the Toolsie Persaud lot. Even if agreement is reached between the Government and the company the September 1 date seems highly unrealistic given the due process provisions in the legislation and the logistics involved in resettling approximately three hundred vendors.

Not surprisingly the issue has generated considerable interest among the political players, the parties involved and the wider public. On the one hand the Government is faced with a major political problem if it fails to offer some relief and on the other hand the morality of holding and speculating in property has come to the fore. That someone can make huge sums of money in a speculative transaction is a reality of the market system which many find difficult to accept, but so is tax evasion and several other anti-social activities which are so prevalent in our society.

Members of the private sector have been critical of the proposed acquisition in private but not surprisingly none of the sector's representatives has commented publicly on the matter. It is a delicate subject which seems headed for the courts although it would be hard to fault the company's appeal to the President in this week's Catholic Standard. It is in the Government's interest to negotiate rather than legislate in this matter notwithstanding its parliamentary majority. President Jagdeo will return this weekend from Chile to find the PPP/C heartland in turmoil while the problems on the other fronts remain unsolved.

Once again the pavement vending problem grabs national attention if only because it requires some immediate, if only short-term solution. This is no easy problem nor is it restricted to Georgetown. While data quoted may not be entirely reliable, it seems that the land cannot accommodate all the vendors and that this proposed solution may not only be short-lived but may even fail. We have seen a number of similar attempts in the past fail and it would be a mistake to address the current problem without greater thought. Over the years several other options have been suggested including the Guyana Stores Bond, the extension of the Stabroek Market, new facilities in place of the Fire Station and the Ministry of Human Services. And what are we doing about the problems of vending in other areas of the country?

Almost daily the ranks of the unemployed are growing in the face of an under-performing economy. We need to address the problems of an economy that is not providing the jobs the country so badly needs especially at this stage when a number of persons will be leaving school with all their degrees, CXC's and CAPE's. While the clearing the pavements should help the established businesses, we also have to recognise that consumer purchasing power is declining. What we need are better policies to restore confidence and vibrancy to the economy and hope and opportunities to individuals and businesspersons.

The privacy of tax affairs

The debate has manifested some rather unfortunate tendencies and weaknesses. One of the more worrying ones is the reference to tax records, the confidentiality of which is supposed to be protected by law. Yet there were two persons from the government including the Minister of Finance who by implication sought to bring the company's tax affairs into the public domain. Even under what I refer to as the Burnham law, the Minister of Finance has no legal right to tax records but the unfortunate inference is that he is aware of the tax value of the property, an echo of days we thought we had put behind us. Perhaps taking his cue from the Minister, a lawyer MP from the Government bench also referred to the asset's tax value. Surely this is taking parliamentary privilege too far by a member of a profession for which tax compliance must be its Achilles Heel.

The other issue is what is "adequate compensation". While interpretation of the law is a matter for the courts, it is reasonably well settled that it means the pecuniary loss ascertained by determining the value of the property of which the owner is deprived. It is the money value into which the owner could convert the property. Value has nothing to do with historical cost or tax values. It is another irony of this whole affair that while the cost to the company is being questioned in relation to the mode and source of original acquisition, the same argument can be advanced in relation to Guyana Stores properties acquired from Bookers using the power of the State. Valuation is not a precise science and that is why it is important that the two parties agree on some valuator whose judgment they will accept.