This year, government, through the Ghana Revenue Authority is looking to significantly tighten the fiscal environment for mining companies operating in the country. This has been coming in recent months as both the President and Vice President have publicly berated the country’s gold mining industry for not doing enough for the public treasury and for their host communities.
Tightening the fiscal environment is a controversial move however. In recent years, since gold prices fell below US$1,300 per ounce on the international market, Ghana’s gold producers, through their chamber, have warned that declining profitability is persuading them to consider the fact that this country – having led the liberalization of Africa’s mining sector operating environment back in the 1980s – now has one of the tightest fiscal frameworks on the continent.
To be sure, Ghana sees gold mining in particular as a goose that lays golden eggs. The corporate income tax rate on that sector is 35 percent whereas most other sectors are required to pay a significantly lower 25 percent. This reflects the reasoning of Ghana’s civil society that the sector basically comprises of predominantly foreign owned companies exploiting the country’s natural resources, and therefore they should pay heavily to ensure that the citizenry who truly own those resources get a reasonable share of their natural resource wealth as it is exploited.
On the other hand, the foreign mining companies make thinly veiled threats that in the emergent global economy where every country has to compete for international capital, they could decide to move elsewhere to benefit from the more favourable fiscal terms on offer. In response, hawkish civil society leaders in Ghana point out that they cannot afford to abandon their huge infrastructural investments, even if they have access to similarly well-endowed mining properties elsewhere.
In turn, the Ghana Chamber of Mines, on behalf of its mining company membership points out that under the tightened fiscal circumstances in Ghana, investment in new exploration is steadily declining, suggesting declining interest in Ghana by the global mining industry.
And so, the arguments go back and forth.
It is very instructive to note however that the ongoing tightening of the fiscal regime for solid mineral mining in Ghana is not so much about higher tax rates than about the more efficient application and administration of existing tax rates and regulations. Here, government is saying that mining companies in Ghana have tended to exploit all the loopholes created by poor tax administration to evade some of their fiscal obligations, both as tax payers and as joint venture partners with government itself. This is what the new tax initiatives primarily aim to curb.
This newspaper agrees with government on this point, even as it admits that the fiscal regime needs to be kept competitive in order to attract the new investment required to keep Ghana’s mining industry fully productive.
At the same time, we see the need for government to be more transparent in how it spends the tax revenues and royalties already being paid by the mining industry if the mining companies are to be willing payers. The current situation whereby government diverts the bulk of those payments – royalties meant for local host communities inclusive – into other purposes only to turn around and accuse mining companies of neglect, is not a good one. Indeed, Ghana’s citizenry have wrongly been convinced to measure the contributions of the mining industry to their well-being by their corporate social responsibility efforts, to the exclusion of their contributions through tax and royalties payments and generation and repatriation of direly needed foreign exchange to fund our inordinate desire for all things imported.
This too should change alongside the mining industry’s willingness to evade some of their fiscal obligations. Both government and the mining companies are shortchanging the host communities and the wider Ghanaian citizenry. Both sides need to do better.