For the country to become the much-touted mining hub of Africa, there must be a review of certain fiscal provisions with the potential to impede growth of the industry, extractive industry experts have advocated.
While the current regime remains relatively competitive, Senior Economic Analyst at the Natural Resource Governance Institute (NRGI), Dr. Alex Ampaabeng, said there are a host of other less ‘investor-friendly’ fiscal provisions which are impacting negatively on the country’s ability to attract investments into the mining sector.
Key among these, he noted, is the prevailing VAT on exploration – a risky and capital-intensive exercise with no assurance of returns on investment. VAT on pre-production activities, he explains, threatens efforts at attracting investors to explore for additional resources; particularly as the country’s neighbours are offering investors zero VAT exploratory expenditure.
“Also, the current 35 percent corporate tax rate on incomes of the mining sector operators is very high and way above other resource-rich countries – such as Burkina Faso, 27.5 percent; South Africa, 25 percent; and Tanzania, 30 percent.
“Furthermore, the loss carry-forward of five years is far below the provisions by Tanzania – 30 years; and South Africa’s 20 years; and only the same with neighbour Burkina Faso. On participation, only Burkina has the same arrangements of 10 percent carried interest; the rest are non-existing or negotiable,” he added.
He therefore lamented that such impositions can be discouraging to investors, adding that: “A complete exemption of all mining exploratory costs from taxation would be a good starting point”.
Similarly, Energy Economist and Minerals Analyst at Africa Centre for Energy and Environmental Sustainability, Dr. Gideon Ofosu-Peasah, noted that the current fiscal policy requires large-scale mining (LSM) companies to repatriate a maximum of 25 percent of realised mineral revenue under the Minerals and Mining Act, 2006 (Act 703) to Ghana, to provide liquidity and stability to the forex market.
However, he asserted that the share of mineral revenue returned by the Ghana Chamber of Mines averaged 70 percent in the last five years.
Despite this arrangement, the Ministry of Finance has announced its intention to unify mineral income retention policies in the mining sector – by retaining a defined amount of the earnings from mineral exports in an offshore or local account, albeit at companies’ discretion; and the remaining proceeds will be sold to commercial banks per the statutory surrender requirement.
To this end, he said, a change in the mining revenue retention rule will not only upend the miners’ contractual agreements with their suppliers, but also burden them with additional transaction fees and probable delays.
“To suit their operational and general financial needs, the majority of mines currently run currency accounts in offshore countries. Therefore, it would be redundant if a business was obliged to register and maintain a second FX account locally,” he said.
Moreover, the red tape involved in transferring to local currency accounts, he noted, will cause delays in payment to suppliers; which could result in delays in the supply of essential spare-parts and equipment.
Dr. Ofosu-Peasah further noted that the plan to alter the mineral revenue retention regime may cause mining corporations to line-up to obtain foreign currency to fulfil their obligations.
“The consequent surge in demand might make it more difficult for financial intermediaries to quickly supply the significant FX needs of the mining sector, whereas increased demand from the mining sector could put pressure on the local currency.”
He therefore proposed that government and private sector players should jaw-jaw around the effects of adjusting or introducing new fiscal regimes to attract needed investments into the mining sector.