By Kevin Ramnarine
In the early 1980’s when the first oil boom had come to an end, the late Prime Minister George Chambers famously remarked “Fete Over Back to Work”. Carnival 2017 is over and we will soon see whether MX Prime is a prophet. With Carnival over the economy and crime take centre stage as the biggest issues.
In thinking about the economy, I want to deal with two separate issues that were brought to the fore by the Minister of Finance on March 6th and 7th in the House of Representatives and in the Senate respectively.
On March 6th, the Minister of Finance, Colm Imbert told the country that Petrotrin had recorded a loss of TT$ 4.5 billion in 2016. This was increased loss making position compared to the approximately TT$600 million loss that was reported earlier. The Minister, as could be expected, put the blame for this bigger hole in the profit and loss statement on the former Government who he alleged had hidden the losses of the company.
Given that nothing Mr. Imbert does surprises me, I kept calm and proceeded to study the matter.
The issue is simple. When a company makes a loss or if a company has unrelieved capital allowances, it can carry these forward as a “deferred tax asset”. Note that this has nothing to do with deferring taxes or not paying taxes.
Carrying losses forward as a deferred tax asset is an accepted accounting practice and it considers that the company is a “going concern”. That is to say, a company is a continuum.
A “deferred tax asset” is carried on the balance sheet of the company. In Petrotrin’s audited accounts for the year 2015, the “deferred tax asset” was reported in the Balance Sheet as being about TT$ 4.5 billion. The auditors will however only allow losses to be carried forward as a “deferred tax asset” if there is a good chance that the company will be profitable in the near future.
That is to say, if the company will have taxable income. In 2015 both Petrotrin and the auditors believed that Petrotrin had a good chance of being profitable again and hence they left the deferred tax asset on the balance sheet.
What therefore happened between 2015 and 2016? Clearly it was the view of Petrotrin that the deferred tax asset should be impaired or written off because it no longer had any use.
A deferred tax asset can only have a use if there is taxable income. The clincher is now this. The fact that the company impaired the “deferred tax asset” and expensed it in the profit and loss statement says the company believes that it will have no use for this asset in the future.
One can therefore logically conclude that Petrotrin is of the view that it would not make a profit anytime soon.
Petrotrin may have also been trying to avoid the embarrassment of getting a “qualified opinion” from its auditors. A qualified opinion is a statement issued after an audit is done that suggests the information provided was limited in scope.
The auditors may have therefore had an issue with keeping that deferred tax asset on the books given the negative outlook for the company.
The long and the short of all this is that nothing was ever hidden by the former Government and the Minister of Finance was being his usual political self when he made that allegation. Petrotrin’s external auditor is KPMG who audits the company to international standards.
KPMG signs off annually on Petrotrin’s audited accounts and these audited accounts are laid in Parliament and made public. It is therefore wrong to suggest that something was being hidden or not reported. To suggest subterfuge is to attack the integrity of the auditor who happens to be one of the big four auditing firms in the world.
The second issue has to do with statements by the Minister of Finance, in the Senate last Tuesday March 7th 2017 regarding Petrotrin’s tax liability. In replying to a supplemental question from Senator Wade Mark, the Minister of Finance said, “Under this Government Petrotrin has resumed once again to start paying taxes to the treasury which it was allowed not to do under the UNC Government”.
The records of the EITI show that Petrotrin made significant payments to the Government from 2011 to 2015. In total, from 2011 to 2015, Petrotrin paid TT$ 20.1 billion in taxes, royalties and other payments.
It is therefore incorrect to tell the Parliament that Petrotrin was not allowed to pay its taxes under the UNC. Once again, and I’m sure not for the last time, the Minister of Finance allowed his political self to trip him up.
The country is at a most sensitive and critical juncture in its economic history. At this time the country needs leadership on matters of the economy. At such a time, it is critically important that we remove politics from the affairs of the Ministry of Finance. Sadly, that seems impossible since Mr. Imbert is perhaps the most political Minister of Finance in history.