Business News of 2014-06-03

Mining sector remains attractive – Finance Ministry

The Special Advisor to the Minister of Finance, Dr Larbi Siaw, has dismissed assertions that Ghana is the most unattractive mining destination in West Africa, a position that can affect its ability to command investors into the sector in the coming years.
Ghana is said to have moved to that unenviable position where Guinea Bissau reduced its corporate tax paid by mining companies from 35 per cent to 30 per cent, at a time when Ghana revised its rate up from 30 per cent to 35 per cent.
The Ghana Chamber of Mines, the umbrella body which represents the interest of mining companies and service providers in the country, has argued that the worsening fiscal regime in the country, coupled with the recent restrictions on the use of forex, especially pricing it in the dollar, will negatively affect the country’s ability to attract mining giants going forward.
The Director, Public Affairs and Environment for the chamber, Mr Ahmed Nantogmah, at a recent workshop on Extractive Industries Transparency Initiative (EITI) at Koforidua in the Eastern Region, argued that there were emerging mining destinations in neighbouring West Africa and Ghana should be careful not to create an environment unattractive to global mining giants.
But Dr Siaw, who is a tax policy expert, did not share in the sentiments that Ghana had become unattractive for mining, saying “even at the rate of 35 per cent corporate tax, Ghana is not the highest as others were applying 40 per cent,” adding “it’s an overstatement.”
The tax policy expert explained that the 35 per cent was advisory and applied only to the extractive industry, comprising mining and oil and gas.
“So it’s the categorisation and people should look at it this way; Let us talk substance and stop this knit pricking and complaining about small things,” Dr Siaw stressed.
In addition, the corporate tax was paid only when the companies made profit, he explained.
The same fiscal regime allowed mining companies to carry forward their losses for five more years, which should all be factored in when estimating the attractiveness of the sector to international investors.
He advised stakeholders in the industry to disregard such minor fiscal issues and focus on substantive issues.
Mr Nantogmah, said at the EITI workshop organised by the Institute of Financial and Economic Journalists (IFEJ), that the country’s fiscal space for mining was becoming restrictive and could lead to mines shutting down due to high costs.
“In Ghana, there is Value Added Tax (VAT) on exploration. This means that when companies come in to do exploration and do not find any deposits, they lose without recovering their VAT and this makes exploration highly risky,” he said.
The chambers of mines said in other jurisdictions, companies doing exploration were not subjected to the payment of VAT and there again made Ghana a high cost destination for mining activities.
In recent times, Ghana has also increased royalties that mining companies pay to the government and communities. The charge, which is levied on the gross income of the mining companies, has been increased from three per cent to a fixed five per cent.
The mining law had envisaged a situation where royalties could range between three per cent and six per cent. But since its enactment in 1989, the rate has remained at the minimum. However, following the government’s inability to impose windfall tax on mining companies in 2012, the government raised the rate to a flat five per cent to be paid by all mining companies, except those with stability agreements. Windfall profit tax
Dr Siaw said the Windfall Profit tax had not been abandoned but would be reintroduced at the appropriate time.
“The legislation is with Parliament. It is now being reviewed and at the appropriate time it would be reintroduced.”
Its reintroduction, according to him, would depend on certain indicators such as the world market price of gold and the profitability of the mines, saying “so when you see these indicators, they become clear signs that it will have to be reintroduced.”
Dr Siaw explained that any reintroduction would be done in consultation with the mining companies, as well as all stakeholders and it would not be a surprise to them.
His assertions conform to proposals by Dr Steve Manteaw, the co-Chair of the Ghana EITI (GHEITI) National Steering Committee, that the government should not shelve the windfall profit tax, but fine-tune it now for its future reintroduction.
“The government needs to set up the benchmarks on what constitutes super profit which should be taxed. So even though gold prices are falling on the international market, we need to get busy preparing the space so it can be applied when the conditions precedent strike,” Dr Manteaw said.
The civil society worker also argued that the real cost of mining to the economy of Ghana, which included environmental impact, denying residents of their livelihoods, impact on agricultural land, destruction of vegetation cover, as well as fodder and fauna, had all not been costed.
Therefore, civil society groups such as ISODEC, WACAM and the Third World Network, believe opportunities such as windfall profit tax, should not be left unexercised.