IFS Advises Gov't To Review Taxes Of Mining Companies

Government needs to take a critical look at taxes paid by mining companies and businesses in the informal sector in order to boost revenue mobilization.

The Institute of Fiscal Studies (IFS), an economic think tank, which gave the advice recently, in its pre-2018 budget review document, said the country's authorities must reduce the widespread tax exemptions and evasion, broaden the tax base, strengthen revenue administration, improve tax compliance and help combat abuses and corruption.

The mining sector in Ghana, it said, had a dominant potential to contribute to national resource mobilization.

“However, the sector's contribution to government revenue has not grown with the same pace, and the overall impact of the sector to national development, despite the mineral commodity boom, is not very visible.

“This is because the incentives accorded mining companies have greatly limited the share of government revenue from the sector and constrained the opportunities for government to mobilize adequate resources to fund social and development programmes. The framework of the current mining legislation in the country, which generally seeks to encourage foreign investment, is not necessarily compatible with the maximization of revenue and attainment of social and economic development,” Prof Newman Kusi, Executive Director of IFS, told journalists.

He said the range of capital allowances, list of mining related equipment and items exempted from custom duties, non-payment of capital gains taxes, Value Added Taxes (VAT), dividend withholding taxes, corporate income taxes, huge offshore sales revenue retentions and the payment of royalty at the lowest allowable rate, constrain domestic revenue generation, resulting in less visible contribution of the sector to national economic development.

He, therefore, emphasised that to ensure that the country benefitted from the mining sector in terms of growing its tax base, the government has to undertake “a complete review of the mining fiscal regime and its investment and stabilization agreements.”

That would require re-examination of the Minerals and Mining Act, 2006 (Act 703) and a review of mining contracts and agreements.”

Ghana's Minerals and Mining Act, 2006, (Act 703) provides for fiscal stabilization, mining investment and development agreements.

These agreements are supposed to be signed by mining companies with mining leases for specific mining prospects.

Also, it provides for companies to negotiate stability agreements to ensure that mining companies, for a period not exceeding 15 years, are not affected by new legislative enactments and amendments that would adversely affect their operations.

In addition, companies with investment portfolios exceeding US$500 million may negotiate development agreements with the government.