Ghana risks losing huge oil tax revenues

The country risks losing massive oil tax revenues if it continues awarding contracts to companies assess their tax liabilities themselves without checks, the Africa Centre for Energy Policy (ACEP) has said.

In the first of a series of policy briefs on Ghana's oil governance, make it mandatory for all oil companies to disclose their beneficial owners before they are given contracts, and then hire independent auditors to verify the tax liabilities of the companies.

“The tax havens first of all they promotes corruption, in the sense that beneficial owners of the companies are hidden, [and] people award contracts to themselves because they own companies that are registered in countries compelled to disclose the owners,” Mohammed Amin Adam, Executive Director of ACEP, said.

“And because we are not allowed to know that they are behind those companies, they get away with it; and this is what rich countries where politicians have companies and they award contracts to their companies because you cannot tell that those politicians are behind those companies since you have no access to their registration documents.”

Most of the companies operating in the country's oil industry are registered in tax- havens. Tullow Oil is incorporated in the British island called Jersey, a tax- haven that has just been blacklisted by France in a move to impose heavy penalties on thousands of French individuals and businesses.

Kosmos Energy and Anadarko Petroleum are incorporated in the Cayman Islands, another tax-haven. Government has also just recently approved a petroleum agreement in respect to the South Deep Water Tano oil block with AGM Petroleum Ghana, a company fully owned by AGM Gibraltar - another tax-haven.

“Our Petroleum Income Tax law allows any company that finances its project by debt financing to deduct the interest at cost, which means that the higher the interest the higher the cost - and the lower the revenue that will come to the state because revenues are shared after costs have been deducted.

“So companies registered in secrecy jurisdictions will finance their operations and the interest that is deducted goes back to the same company, and so it is the same company that is circulating revenues around at the expense of the state,” Mohammed Amin said.

“If we have to solve this problem, first of all we must have in our law that all owners, all the people behind companies, must be known - and Ghana would not be the only country asking for this. South Sudan just passed a new law, and they have made it a requirement that unless the owners of a company are known, that company will not be given a contract. Peru and Liberia have also put the same in their new bills,” he added.

On assessing the tax- liability of oil companies, Mohammed Amin said the country cannot rely solely on companies for that information, since they do not always tell the truth about such matters.

If the country's tax authority does not have the capacity to do its own assessment of how much companies owe the country in taxes, then an independent audit agency needs to be hired, he added.

Countries that allow companies to assess their tax liabilities, he said, have laws to punish the companies when they misreport.

“But we do not have that provision in our tax laws yet. And therefore if you are asking companies to do self- assessment, it is on the premise that they will provide correct information. But in the oil and gas industry, it is not true that companies provide correct information all the time. Most of the time they massage their figures and they increase their costs,” he said.

“If you do not have the critical skills that will unearth some of these critical challenges through self- assessment, then the country is the loser. In Angola they have found a way that when the companies do self- assessment, they hire a competent auditor to determine whether the company has provided the right information.

“Therefore nothing prevents Ghana, if we do not have that capacity, from hiring specialised audit companies to audit the self- assessment done by oil companies in order to establish the true value of their tax liability.”

For the 2013 fiscal year, the country expects a total of GH¢1.12billion from the oil sector, including GH¢107.8miIlion as corporate tax.

In 2012, government projected that a total annual revenue of over GH¢1billion would accrue to the country, but the corporate tax component of GH¢384 million was not received.

In 2011, government projected to receive GH¢1.2 billion from oil, including corporate taxes of about GH¢600 million.

The total amount earned, however, came down to GH¢667 million, representing a shortfall of GH¢ 583 million.