An economist, Prof. John Gartchie Gatsi, has challenged the government to come clear on the tax concession deal between the country and mining firm AngloGold Ashanti (Ghana) Limited (AGA), explaining that the terms of the agreement favoured the South African-based miner more than the country.
He said the resort to job creation as one of the pressing reasons for the tax cuts was untenable, given that the employment opportunities from the company had been limited.
Prof. Gatsi, who is also the Head of the Department of Finance at the School of Business, University of Cape Coast, indicated that ever since the company began operations in the country, its contribution to job creation had been intermittent.
“Is that what we are interested in? Their contribution has been minimal. Ghanaians in general have not been happy with the operations of the mining companies, let alone give them huge tax incentives,” he said in an interview with the GRAPHIC BUSINESS on the agreement granting stability terms to the AGA that had received criticisms from some key stakeholders and experts in the mining and tax sector before and after ratification.
Generally, he said, the arrangement in the mining sector was equal to relinquishing the nation’s interest to the mining company.
“And if we compare what is happening in the polished mineral sector as against oil and gas, we can see a well-structured approach to ensure that from time to time, we increased our gains in the oil and gas sector as opposed to the mining sector.
“There is the need for total reforms in terms of outlook for regulation, in terms of policy, in terms of what the nation gains on mining in general and overall outline of what we want to gain from mining going forward in the country. That is very necessary,” he stated.
Prof. Gatsi added that any government initiative intended to bring a major transformation in the country should have enough clarity for the people to buy into it.
According to him, a tax concession or waiver granted by the country must be within the provision of the laws of the country on taxation and so long as it was within the requirement of the law, there was nothing wrong with it.
However, he added that when using such measure as an incentive package, an assessment of the overall benefit that entity would bring to the country must be made.
“You will look at the quantum of jobs that will be created that the country over time may not be able to create. But as it is, job creation by AngloGold has been undulating to the extent that the key people who are working there are not really the masses of Ghanaians that we want to be engaged in the mines,” he indicated.
He said the overall reason why the government found it necessary to give such a tax concession to AngloGold ought to be disclosed for us to assess but that had not been done.
The Government, in February this year, signed a fiscal and development agreement with AngloGold that provides the framework for the redevelopment of the Obuasi mine.
In the agreement, AngloGold will not be paying royalties at the current five per cent but three per cent, and has a US$177 million waiver on imported items due to a tax cut of 32.5 per cent as opposed to the flat rate of 35 per cent.
Initial expenditure for the project, excluding production cost, is estimated to cost between US$450 and US$550 million and it is expected to create about 2,500 jobs.
Committee reports on concession
Parliament’s report on the AGA agreement stated that the Joint Committee on Finance and Mines and Energy was of the view that Ghana stood to benefit in the long term if the agreement was ratified by the House.
Some of the likely benefits that may accrue to Ghana, according to the report, are the potential revenue inflows, the restoration of economic activities in the Obuasi community, an average of about 2,500 jobs to be created during the life of the mine, support to implementation of local development initiatives, enhanced security at the Obuasi community and knowledge transfer to the indigenous people.
Indeed, the committee observed that the only way for the AGA to operate profitably given its current position was to secure the state’s approval for redevelopment of the mine, as well as tax concessions over a period.
Accordingly, it recommended to the House to adopt its report and ratify the agreement in accordance with Article 268(1) of the 1992 Constitution and Sections 5 (4) and 49 of the Minerals and Mining Act, 2006 (Act 703).
Also, prior to the ratification, the report of the Joint Committee on the Tax Concession Agreement (TCA) stated its satisfaction that the grant of fiscal concessions under the TCA was necessary for the planned redevelopment of the Obuasi Mine of the AGA for the achievement of the targeted economic and social benefits for Ghana generally and Obuasi in particular.
A working paper on Foreign Direct Investments (FDIs) and tax concessions by the International Monetary Fund (IMF) showed that the practice of using tax concessions to attract FDIs had been successful.
Yet, the Executive Director of the Centre for Extractives and Development Africa (CEDA), Mr Emmanuel Kuyole, has said the trend of the government doling out huge waivers to companies in the mining sector results in loss of revenue.
At a stakeholder engagement on the fiscal gaps in the mining sector, organised by the Institute of Financial and Economic Journalists (IFEJ) in partnership with GIZ, he said the government had given out lots of revenues in the sector which had not been put out in the public domain.
“We quickly reduce royalty rate which is one of the key areas where the country gets revenue from the mining companies. Sometimes mining companies are exempted from paying local assembly taxes and which all go to deprive the state of the necessary revenue from the sector,” he said.
A tax expert, Mr Abdallah Ali-Nakeya, has said that mining operations are globally conducted under the shadow of law and policy, but then the policy drift or the specific reason for mining in Ghana is, however, largely undetermined, having regard to the peculiar (finite & volatile etc.) nature of mineral resources.
“Rules governing mining revenue management are particularly not adequately determined. This accounts for why the expected returns of social and economic development from mining revenue are not being realised,” he said.
He proposed the enactment of a comprehensive mineral revenue law such as the Petroleum Revenue Management Law to replace the Minerals Development Fund Act, 2016 (Act 912), taking into consideration the peculiar context of mining.
“Establish a Mineral Revenue Holding Fund with a clear distribution formula for distributing mineral revenues between the central government and communities; the community share of revenues should be transferred to the district assemblies for community development and disbursed in the same or progressively revised manner as currently enforced under the Mining Community Development Scheme in Act 912,” he stated.
The National Coalition on Mining (NCOM) has described as illegal the fiscal and development agreement between Ghana and AngloGold and further asserted that it would remain so even after Parliament had ratified it.
It insisted that there was no legal basis for cutting the corporate income tax or reducing the rate of royalty. Therefore, illegality persisted in the approved agreement so far as those two fiscal concessions remained part of the package being given to AngloGold.
A member of the coalition, Dr Yao Graham, said in an interview that the economic reasons why AngloGold should not be given such waivers remained valid because it was not a new mineral development risk, but an old mine in which they knew the value of the deposits that they were about to exploit.
“By and large, our argument remains valid because the agreement didn’t change significantly and in fact, the illegality in relation to royalty and corporate tax remain. It is not like they are going to take a risk so you want to encourage them, and there is no economic justification for this concession,” he stated.
The Minority Spokesperson on Finance, Mr Cassiel Ato Forson, said the deal was badly negotiated and that Ghana would lose more than US$300 million.