September 28, 2021 (IEEFA) — Guyana is giving tax breaks worth at least USD$1.7 billion over five years to three of the world’s largest oil companies, according to a report by the Institute for Energy Economics and Financial Analysis (IEEFA). Tax concessions granted to ExxonMobil, Hess and the China National Offshore Oil Company (CNOOC) by the Guyanese government absolve the companies from paying annual income taxes that other Guyanese companies and citizens are required to pay.
IEEFA’s analysis shows that the tax concession lowers Guyana’s oil take from 12.5% to 9% of gross oil sale revenues. Over the next five years, IEEFA estimates that the tax breaks given by Guyana will amount to roughly USD$1.7 billion, or about USD$340 million per year—more than half of Guyana’s $525 million budget deficit for FY2021.
“Corporate tax incentives can be useful if the country granting them derives some benefit from them,” said Tom Sanzillo, IEEFA’s director of financial analysis and the report’s author. “Guyana’s tax giveaway is part of a deal with many incentives for the oil companies. This one is unnecessarily burdensome for Guyana. The unwillingness of the government to disclose the full details related to tax compliance and payments raises more questions about the fairness of this deal.”
Guyana’s government pledged to be transparent about the amount of money the country receives from the oil agreement. The government announced it has received USD$388 million from seven oil lifts so far. But greater clarity is needed, including reporting the expenses incurred against the revenue received.
The government has been tight-lipped about the after-tax amount available in the Natural Resources Fund (NRF). And there do not appear to be any withdrawals from the NRF to pay for taxes of other expenses in 2019 or 2020.
“More disclosures are needed to understand how this system works,” said Sanzillo. “The government needs to clarify why this deal is in the best interests of Guyana and its citizens.”
Additional disclosures may reveal yet another enhanced tax benefit received by ExxonMobil and Hess under U.S. tax laws: The companies could claim the tax payments against their U.S. income tax, which may not have been considered as part of the profit-sharing agreement.
“This tax giveaway is just one more way that the public is being shortchanged,” said Sanzillo. “IEEFA plans to publish additional details and analyses of contract provisions that benefit the companies at the expense of Guyana’s fiscal health.”
Full Report: Guyana’s Tax Giveaway: Guyana Pays ExxonMobil, Hess and CNOOC’s Annual Income Taxes
Tom Sanzillo ([email protected]) is IEEFA’s director of financial analysis.
Muhamed Sulejmanagic ([email protected])
About IEEFA: The Institute for Energy Economics and Financial Analysis (IEEFA) examines issues related to energy markets, trends and policies. IEEFA’s mission is to accelerate the transition to a diverse, sustainable and profitable energy economy.