FACTS REVEAL…
NO REVENUE LOSS IN AMINATA & SONS DEAL
Much of recent discussion regarding the Aminata & Sons concession agreement presently before Parliament has been based on speculation rather than the specifics and intent behind this agreement.
The primary fact here is that there will be no tax waiver. Rather, the concession agreement will request a tax deferral for three years. This is a big difference.
A tax waiver gives a permanent exemption from payment of some types of taxes, which means that the Government loses all potential for receipt of that portion of revenue. On the other hand, a tax deferral merely delays payment obligations so that an investor can allocate funds toward expansion, infrastructure and operation improvement prior to satisfying those deferred payments. The money still exists, but the time for payment is extended.
The distinction between tax waiver and tax deferral is critical since the narrative developed by critics implies that Government is waiving revenue. That is incorrect. Around the world Governments frequently give tax deferments (tax holidays), etc., as incentives to entice businesses to make large capital investments in areas such as creating jobs, improving infrastructure and strengthening strategically important segments of their economies. Incentives to promote economic growth are recognized tools used by Governments to create long term increases in Government revenue.
Aminata & Sons is not a new comer requesting special preference without a history of success in the petroleum industry in Sierra Leone. The Company has earned credibility and reliability status among the participants in Sierra Leone’s petroleum industry. Over a relatively brief period, the Company has evidenced its ability to maintain high levels of operational performance, to ensure the availability of products and to invest in petroleum related infrastructure.
As previously stated, the reason for proposing the tax deferral is clear: to permit the Company to increase its petroleum storage capacity, to enhance operational efficiencies and to improve fuel security for the Country. Substantial capital expenditures are required to accomplish these goals and the proposed deferment is to be utilized to free up resources for this purpose.
Critics of this agreement fail to consider one very basic principle of economics. An increase in storage capacity equates to a larger amount of available petroleum reserves, better supply chain management, less likelihood of shortages, greater market stability and overall increased economic activity. All of these elements combine to produce additional revenue for Government through increased commercial activities, employment creation and increased transactional activities.
Additionally, the comparisons made by critics with certain mining agreements are inappropriate. Many mining agreements have included various forms of fiscal incentives, exemptions and complex tax arrangements lasting many years. The proposed arrangement for Aminata & Sons is much narrower in scope and focused solely on facilitating infrastructure expansion in a key segment of the economy that impacts virtually every citizen of Sierra Leone through access to fuels and resultant prices.
Finally, it is worthy of note that this proposal was unanimously approved by Cabinet. Cabinet’s unanimous endorsement indicates that agreement was reached after thorough examination by representatives from each of the participating Ministries, economic planners and legal advisors prior to submission to Parliament. Consensus would not have occurred had the agreement actually posed a threat to National revenue interests.
Therefore, the debate should not be framed around a misperception that the agreement represents “lost” revenue. Instead, the focus should be on determining whether or not Sierra Leone wishes to support indigenous companies with demonstrated histories of responsible business practices and who desire to grow, invest and fortify essential national infrastructure.
If the answer is affirmative, then the requested tax deferral for a limited period for the purpose of expanding storage capacity and improving operational efficiency should be viewed for what it is — an investment facilitation mechanism capable of generating greater long term economic benefits — not a gift of public assets.
Parliament’s role should be to evaluate the terms and conditions of this agreement on their merits, including their economic implications and contributions to national energy security — NOT based on misconceptions that confound tax deferral with tax waiver or investment promotion with loss of revenue