Ghana lost $36 million of gold revenue

-In two years

Ghana, between 2007 and 2009, lost approximately €36 million, in mining revenues that have been repatriated without the necessary taxes to government, a new report on mining has said..


This loss became possible as a result of alleged transfer mispricing and fixed low local revenues in Ghana, which the report also says had affected the fixing of royalties to the country by mining firms.


The two Danish Non Governmental Organisations (NGOs) DanWatch and Concord who conducted the research in Ghana released the report in Copenhagen last week, under the heading: “ Golden Profits on Ghana's Expense- An example of incoherence in EU policy"


“Money lost to tax evasion by African countries, indirectly plunged back to the European and North American economy, is calculated to be ten times more than money spent on development aid for Africa. According to new research, in the period 1970 to 2008, Africa lost $ 854 billion in cumulative capital flight. From 2000 to 2008, illicit outflows from Africa accelerated by 25% coinciding with a boom in mineral prices,” it revealed.

The report went further to reveal how tax evasion and capital flight from developing countries is outnumbering development aid by a factor of one to ten, using the case study of how Ghana sees little revenues from its immense gold riches.


It also demonstrated how multi-national companies generate great revenues from Ghana's rich gold resources without leaving sums worth mentioning in the country. “International tax havens make it possible to dupe Ghanaian coffers,” it added.


“Ghana is a major mining country, and export of minerals and metals in 2007 made up 43% of Ghana's total export revenue. Bauxite, manganese, diamonds and gold are all extracted in Ghana, the report stated, adding that in 2007, Ghana produced 83.6 tonnes of gold.


“But, less than 10% of Ghana's total tax revenue came from the mining industry and mining operations only contributed an estimated five percent to the Ghanaian GDP, according to the Ghana Minerals Commission,” the report added. The report quoted from a work by Charles Ayamdoo and Thomas Akbzaa: “Towards a fair and equitable taxation for sustainable development (2009) that from 1990 to 2007 Ghana had foregone royalties corresponding to $ 388 million, if mining companies had paid 6% rather than 3%. And $ 1.163 billion if mining companies had paid 12 % rather than 3 %, adding “This sum by far exceeds the remission of debt Ghana has been granted in the same period.” It also quoted Steve Manteaw, Communicatins Director of ISODEC , and one of Ghana's leading experts on national mining operations, as having stated that studies had shown that these operations also have a negative effect on the environment that equals between four and ten percent of the country's GDP. "Thus, taking the mining operations' environmental consequences into perspective, the economic effect upon Ghana's GDP is in fact negative," the report says.

Among the reasons for the low economic impact of Ghana's massive mining industry is that, like in most African countries, mining corporations are offered significant tax advantages. "They are exempted from duties, for example on fuel and the import of machines, they pay a lower tax percentage, and they can reduce their tax base through special deductions," the report says, adding that "through aggressive tax planning, these corporations further diminish their tax payments."


African countries typically collect between 30 and 35% in corporate taxes from the mining industry. Ghana only collects 25% of the mining corporations' profits in corporate taxes. "However, many corporations manipulate their profits in Ghana so they appear lower than they really are, sometimes even making them so low that they are exempted from paying any corporation tax at all," the report says.


According to DanWatch and Concord Denmark, this can easily be done by the way multi-national companies are allowed to make their balances. "Corporations can move their profits to countries with low or even no taxation," the report says. "The most commonly used method for moving profits is transfer mispricing."


In Ghana, the alleged transfer mispricing and fixed low local revenues also influence royalties of the value of extracted minerals, the other source of revenue from mining companies. Ghana calculates the royalty rate to a minimum of three percent, which is raised accordingly with the company's profits up to a maximum of six percent.

Low profits on paper will thus also ensure lower royalty payments, the report holds. The loss in royalty revenues could amount to hundreds of millions of Euros during the last decade, mining analysts have calculated.


"The current international tax regulation framework makes it impossible to estimate whether the corporations are paying a fair amount of tax to the developing countries, because they are only obliged to produce an annual report which covers the entire corporation group."


The report also took issues with the European Union, accusing it of double standards in taxation. Many of the world's leading tax havens are on European soil and the EU, in protection of its multi-nationals, has done little to halt this development.


The report called for sanctions against tax havens in Europe and beyond. Further, Ghana and other developing countries should be assisted in capacity building to help them collect their rightful taxes.

In his preliminary response, Minister for Lands and Natural Resources, Collins Dauda, who had not yet seen the report, said his outfit would like to study the report and see what can be done to maximize revenues for Ghana.


“Every government would like to maximize revenue, so if there is a way of doing this, why not? We would like to study and do it well,” Hon. Dauda told the Financial Intelligence. He however added that revenue generation and its maximization is one thing while the utilization is another.


“We generate a lot of revenue in this country but how well we have used it is my main concern,” he stated.


Source: Financial Intelligence (www.fighana.com) Justice Lee Adoboe