Business in Ghana

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Why Government of Ghana Must Implement New Taxes in 2012

Posted by Business in Ghana on June 5, 2012

By Alhassan Atta-Quayson, TWN-Africa, Source: NCOM Newsletter Volume 2.1

In October, 2011, the government of Ghana made a promise that it will increase profit tax paid by mining companies, collect _windfall profit_ tax, and implement a uniform regime for capital allowance of 20% for five years. The government deemed these as some of the steps required to obtain a fair share from the benefits of the country_s non-renewable mineral resources. Given the government_s own concession that _the economic and social benefits that the sector provides are not commensurate with our expectations_, the anticipation has been that those initiatives were going to be implemented fully and in a timely manner. While the budget was approved a few weeks after its presentation, regulations to back these mining sector initiatives are yet to be tabled in Parliament for discussion and approval. It is even reported in the media (such as Ghana_s TV3 Network) that the government has, altogether, shelved the initiatives, at least for the year 2012 when they are most needed.

The enormous profits being made by mining companies in Ghana and across Africa are well noted. As indicated by the government in the 2012 budget _&during the recent global financial crisis, prices of gold, cocoa and oil reached their peak levels ever. Yet, the country did not benefit at all from the price hikes, particularly from gold&._ So if the country has _not benefited at all from the price hikes, particularly from gold_ what is the motivation for shelving the very initiatives meant to ensure that the country receives her fair share from the benefits of the country_s precious and irreplaceable mineral resources? It must be noted that after exploiting these resources there is either a huge hole in the ground or an almost useless _reclaimed_ tracts of land. It is even saddening when one takes a look at financial records of mining companies in the country. The key element in the ever-rising profitability of mining companies has been the price of minerals, especially gold. Gold prices have increased more than 500% over the past decade (from $260 per ounce in 2001 to $1800 per ounce in 2011).

On the other hand, the relatively lower cost of production (which therefore produces huge resource rents for the miners) has not been increasing in tandem with prices. For example in 2010, gold prices averaged $1,100 per ounce, whereas cost of production (on average) was well below $700 per ounce. The difference between price and cost, multiplied by the total production largely explains why the government is _mad_ and literally shedding tears over its share of Ghana_s mineral wealth. Note also that royalty and other taxes charged are part of production cost. To be more concrete, let us take production cost of some mines (and volumes produced) in the year 2010 as reported by the miners in their annual reports and see how they compare with the annual average price of $1,100 per ounce. Goldfield_s Tarkwa mine produced 720,700 ounces (more than 20% of Ghana_s 2010 total production) at a total cash cost of $536 per ounce. A sister mine, Damang (also owned by Goldfields) produced 207,400 ounces of gold at a higher total cash cost of $660 per ounce. The impressive Ahafo mine which is 100% owned by Newmont (with stability agreement with the Government) produced 545,000 ounces (all of them attributable to Newmont) at $450 per ounce in consolidated cost applicable to sales (which includes royalty cost) in 2010. Anglogold Ashanti, also holding a stability agreement with the Government, had a slightly higher production costs. Its flagship Obuasi mine produced 317000 ounces of gold at a total cash cost of $744 per ounce whiles the Iduapriem mine also produced 185,000 ounces of gold at a total cash cost of $666 per ounce.

From this information, mining companies are unquestionably making huge gains from exploiting Ghana_s precious and irreplaceable mineral resources, as their production costs (which includes what Ghana gains from mining through taxes and royalty levies) have been well below two-thirds of the total spoils. Miners therefore make not less than a third of the entire revenue from mining in profits. The government is therefore being called upon to put in place all necessary regulations to ensure the immediate implementation of the above-mentioned initiatives promised in the 2012 budget. It is an established fact that the prevailing conditions, under which mining profits are soaring, whiles communities and the nation at large are losing substantially, must not continue. The government, particularly the executive branch, must master courage to ensure that necessary regulations are passed to improve upon the country_s woeful share from the enormous wealth being produced from Ghana_s non-renewable mineral resources. Civil society organizations, labour unions, and religious bodies must show interest in this precarious national condition and bring pressure to bear on the state institutions to act boldly and quickly in the interest of the good people of Ghana. In so doing, we must always remember that at the end of mining, there is either a huge hole in the ground or almost useless _reclaimed_ tracts of land left for neighbouring communities and the nation at large.

2 Responses to “Why Government of Ghana Must Implement New Taxes in 2012”

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