Reviewing oil, gas contracts bad for int’l business

One of the world’s leading accounting firms, PriceWaterHouse Coopers, has taken issue with Government’s stated intention to review existing Production Sharing Contracts (PSCs), saying that this could do “immeasurable harm to our international reputation.” The accounting firm also is questioning the unemployment figures provided by the Prime Minister Patrick Manning in this year’s Budget presentation. In its 2005 Budget Memorandum, the company wondered whether the decline in the unemployment figure, which now stands at  7.8 percent, was due to “CEPEP or truly long-term employment opportunities.”

The company also takes issue with reform in the energy sector. Senior partner Graham Mitchell states that “despite high oil prices it appears Government does not have a massive surplus.” He goes on to say that despite the promise of fiscal reform in the Energy Sector, “we have yet to see it.” The executive summary also notes that the Government intends to raise its tax-take from the sector. The company warns however that “great care must be taken so as to not non-incentivise the sector,” as there is a “strong (and learned) school of thought which maintains that the tax-take is already at the higher end of the global scale.” Continuing along the same lines, the summary states that the “Government intends to review and re-negotiate all existing Production Sharing Contracts (PSCs).”

It says that this “casual” reference to the e-negotiation of the PSCs will be received with shock by some and could do immeasurable harm to our international reputation.” As for Government’s intention to review the tax liability of the oil companies over the last six years as provided for in the current tax law, PriceWaterHouse see that as a “potentially dangerous precedent,” as “The Board of Inland Revenue is a statutory Board that should and must act independently of any political interference. “Furthermore it is an unwritten policy of the Board that the tax returns of these companies are in fact audited on an annual basis to ensure that they are fully compliant with the tax laws currently in force. As for other measures, the company goes on to state that the corporation tax was “left largely untouched which means that once again we go into a new fiscal year with a two tiered corporation tax rate, one for petroleum related companies not caught by the Petroleum Taxes Act and one for other companies.”

According to PriceWaterHouse Coopers, this is not conducive to the simple tax regime that the Prime Minister alluded to. As for the Value Added Tax measures adopted by the Government, the company claims that this is an erosion of the once very broad based VAT regime, and  goes against the “stated intention of promoting simplicity in the tax regime.” Even though it commended the Government for its efforts, also questions why only the price of orange juice decreased and not all juices, since some children and adults cannot drink the former. On the increase in minimum wage from $8 to $9 per hour, the accounting firm describes this as “modest ease” and expressed the view that this  would “find favour with the private sector which may have had a reason to be fearful of a far more dramatic increase.” While the company lauded some of the efforts by the Government in the Budget, it sound a pessimistic note. “There has been much heralded and promised in the past but the delivery of the promise remains the challenge,” the accounting firm said.