Business in Ghana

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STATEMENT BY NATIONAL COALITION ON MINING ON 2012 BUDGET

Posted by Business in Ghana on November 21, 2011

PROCEED WITH FURTHER REFORMS IN THE MINING SECTOR

The National Coalition on Mining (NCOM) commends the Government of Ghana for the new fiscal initiatives introduced in the mining sector. This commendation is in line with the Coalitions view that these steps are part of a set of actions that are urgently needed to improve the contribution of the sector to the economy and people of Ghana. It is in this regard that the Coalition calls on the government to ignore complaints from mining companies about these initiatives. Rather, the government should proceed with immediate implementation of these new taxes and the critical review of the fiscal regime and mining agreements. The upward adjustment and an overhaul of the fiscal regime constitute a set of actions that ensure that the country improves upon its share of benefits from mining sector.

In the 2012 Budget Statement and Economic Policy presented to the Parliament by the Minister of Finance and Economic Planning Dr. Kwabena Duffour on Wednesday November 16th, 2011, the government sought to increase corporate tax rate from 25 per cent to 35 per cent; impose a windfall profit tax of 10 per cent, and implement a uniform regime for capital allowance of 20 per cent for five years for mining companies. The statement also noted the governments intention to review the principle of ring-fencing as applicable to the Natural Resources Sector in 2012 to prevent companies undertaking a series of projects from deducting costs from new projects against profitable ventures yielding taxable income.

In response carried by the media including Joy FM and Ghana Business News, the mining industry expressed concerns that the increases would hurt their operations because the sector is already over-taxed. The Coalition is calling on government to ignore these usual unfounded complaints as they are simply a smokescreen to cover the super profits the industry has enjoyed under the long years of liberalised mining regimes in Ghana and Africa as a whole. The complaints are also a subtle threat to any further reforms to increase or introduce additional taxes to raise revenue and improve the developmental impact of mining in Ghana.

The Africa wide liberalization of mining codes since the 1980s triggered a boom in large scale foreign direct investment (FDI) in Africas mining sectors. The boom in FDI was an immediate result of generous incentives offered by the liberalised mining regimes sponsored by the World Bank Group and other bilateral donors. These regimes were primarily designed to attract FDI and the key instruments used included the provision of large percentage (up to 80%) of capital allowances, exemption of custom and excise duties on mining equipment, guaranteed offshore retention of earnings, carry forward of losses for a period not less than five years, removal of windfall taxes, and rights of discretion among others.

The industry and architects of the liberalised mining regimes justified these incentives, on grounds that Africa needed FDI to boost growth and development and this was to occur in the context of depressed prices of minerals and metals on the world market. This argument has guided the fiscal regime of mineral producing and exporting countries including Ghana in the last three decades.

Today it serves only the interest of mining companies to maintain these levels of incentives. The prices of minerals and metals on the world market especially gold have been on the rise since 2002. The price of gold jumped from about US$400 an ounce in 2002 to more than US$1700 today. The high price of gold has triggered calls on the government of Ghana from even the traditional architects of the liberalised mining regimes i.e. the World Bank and the IMF to raise certain taxes in order to generate more benefits from the mineral wealth of the country.

In recent times, competition for Africas minerals has become intense among transnational capital from the old industrialised countries and the new emerging economic powers such as China, Brazil, India and South Africa. There were few transnational mining companies operating in Ghana before the reforms in the 1980s. As at the beginning of 2009, Ghana had registered more than two hundred (200) mining companies holding various exploration and production concessions. The number of transnational mining companies operating in the mining sector requires a shift of state policy from simply attracting FDI to optimising the benefits of FDI to the national economy. Indeed, it is the high competition that has contributed to fuelling the price surge. An upward adjustment of some elements of the fiscal regime for the mining sector is one of the many possible responses by mineral producing and exporting African countries to the opportunities created by the competition.

Many times, mining companies put forward the cost of inputs as a reason not to increase taxes. The long years of incentives especially huge capital allowances, carry forward of losses, exemptions on duty for equipment imported are major contributions made by the state towards tooling and re-tooling mining companies. The state also deserves a recovery of such contribution in times of high prices of minerals and metals.

The decision by Ghana to raise corporate tax and re-introduce the windfall tax is not an isolated act on the continent. When the world price of copper increased by nearly 400% between 2000 and 2007 the government of Zambia increased taxes in order to raise its share of mining revenue in the face of similar hostility and threat from the mining companies. The Republic of Guinea recently passed a new mining code in which taxes and state equity were raised to optimise government revenue. In Tanzania and the Democratic Republic of Congo the surge in mineral prices have sharpened and widened public debates about the costs and benefits of mining. At the African Union level as well as ECOWAS and SADC, governments and inter-governmental agencies like the United Nations Economic Commission for Africa have lined up alongside civil society organisations (CSOs) in seeking a revision of existing mining contracts as well as of the codes under which they were granted.

Ghana and Africa as a whole cannot continue forever with investment relations in which: (i) mining production remains enclave with no linkages and local value-addition, (ii) private mining companies pay land rent of GHC0.50 per km2 per annum, (iii) stability agreements lock government royalty receipts to only 3%, (iv) the environmental and social cost of mining is externalised to the public and communities, and (v) human rights violations especially of communities in mining areas occur with impunity.

The National Coalition on Mining (NCOM) is a grouping of communities affected by mining, NGOs and individuals engaged in mining sector advocacy. Third World Network-Africa is the secretariat of NCOM.

For further information contact: Abdulai Darimani or Alhassan Atta-Quayson at Third World World Network-Africa; +233 302 511189/500419; cell +233 240869263/208152184; email: environment@twnafrica.org or adarimani@yahoo.co.uk

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