By Kiana Wilburg
Incentives for operators in the forestry sector have over the years, attracted scathing criticisms and condemnation. In several cases, these incentives were found to be granted to forest operators in a “way too generous manner”
The Guyana Forestry Commission is calling for even more incentives to be granted in an effort to make that sector more competitive.
and more importantly, the authorities are often unable to say how Guyana has benefitted from these incentives being granted to companies operating in the sector.
The case of controversial logging company, BaiShanLin is a testimony of that. Not only did BaiShanLin benefit from billions of dollars in tax breaks on machinery and equipment that were not relevant to its work, but a forensic audit also revealed that it was also able to grab up millions of acres of prime forest lands all on the promise of a wood processing factory that it never even honoured.
Be that as it may, a Proposed National Log Export Policy report (2016 – 2020) as prepared by the Guyana Forestry Commission (GFC) is calling for even more incentives to be granted in an effort to make the country’s forestry sector more competitive.
In light of the new trends and future expectations for forests and timber trade, the report deemed such a move to be a “critical” one.
According to the Forestry Commission in this document, incentives are aimed at continuing to support economic activities while embracing environmentally sound practices.
It noted that in 2007, the forestry sector in collaboration with GO-Invest (Guyana Office for Investment), made several proposals to address incentives for the sector. It said that the sector has benefited significantly from a number of incentives instituted and is now seeking to address other areas of concern to support investment in the sector.
GFC said that efforts have been made to seek input from a wide cross section of stakeholders within the sector. It said that several companies were interviewed to gain insight to the current challenges faced by companies at the various stages of production as well as some of the mechanisms envisaged to be possible solutions. Together with these inputs and the GFC’s assessments, a number of options were proposed in the document.
CONCESSION ON FUEL
The GFC is proposing that there be tariff concessions on fuel. To support its call for this recommendation; it said that companies may benefit from reduced cost of inputs, will be able to operate at full capacity, and become more competitive both domestically and internationally, meanwhile the cost of production will decrease. The Commission said that capital can be used to supplement other areas of operation.
With regard to a proposed method of implementation, the Commission said that companies must have a forestry harvesting and/or manufacturing, registered business specifically dealing with timber and non-timber forest products. GFC said that this exemption is being sought for the forest harvesting, manufacturing and downstream processing industries within the forest sector.
EXEMPTION FROM TAXES
The Guyana Forestry Commission proposed in its report that one crucial incentive would be exemptions from VAT, Import Duty and Excise Tax, on harvesting equipment and machinery, as well as forestry added value equipment.
The Commission said that the harvesting and manufacturing sub-sector of the Forest Sector faces similar constraints as other primary and manufacturing sub-sectors. It said however that the forestry sector is among the first traditional industries in Guyana.
To further cement its recommendation of this type of incentive, the Commission asserted that manufacturers and downstream processors have been plagued with the use of outdated equipment and machinery due to the lack of financial investments or incentives.
Additionally, it said that the high cost owing to the various taxes on harvesting equipment has resulted in a low productivity at the concession/harvesting level. The Commission believes that these in turn has reduced the sector’s ability to be competitive.
The GFC continued, “Equipment to process waste material into finished products can significantly benefit the sector by increasing rate of recovery. Imports of materials to include in harvesting and processing stages are critical to the manufacturing of select forest products. Furthermore, higher investment in forest harvest equipment and replacement of obsolete machinery will increase productivity and output.”
With regard to this proposed incentive, the Commission noted that there is a consultation process with forest producers and manufacturers to identify equipment. However, it said that this is being sought, to have a specified list of equipment and machinery specific to the forestry and manufacturing sub sectors of the forest industry be included in an effort to promote and encourage investment in the sector.
EXEMPTIONS FOR EMPLOYEES
The Forestry Commission is of the firm view that there should be tax-free overtime exemptions for employees. The Commission noted that many manufacturers in the timber industry are affected by a number of challenges in maximizing production. Among them is a skilled labour force.
“However, much of the labour force is required to work for a small pay package and in many cases overtime is required. In order to encourage a more productive labour force the manufacturing sub–sector would like to request the same exemptions to be granted as those are reportedly granted to other sectors,” GFC expressed.
The regulatory body said that the objective is to give the workers more take-home money without increasing their pay. It believes that this will reduce the cost of production and make prices more competitive for products; increase investment in labour and promote training and specialization. The GFC is also of the view that this incentive would encourage production and enable companies to meet or exceed their targeted output.
TAX WAIVER ON SPARE PARTS
Another crucial incentive recommended by the Commission was the need to have tax waivers on spare parts, components and tooling. GFC said that concession holders and operators invest on an annual basis a significant amount on spare parts and components for logging equipment. It noted that some companies invest in excess of $34 million annually in this category.
“Many companies maintain outdated equipment and machinery and reduce the amount of maintenance on equipment due to high costs of these. A waiver will allow for higher levels of efficiency and increase the lifespan of equipment, increase productivity due to maintenance, reduce cost of operations, reduce the risk of accidents and increase health and safety of employees.”
GFC said that this is strongly encouraged as an incentive to improve the processing capability of the wood processing sub-sector and will also be consistent with the thrust of the Code of Practice for Processing Operations.