Accra, Ghana, October 8, 2020//-The strict mining fiscal regime being embarked upon by Ghana since 2013 is yet to end the litany of heated debates on the benefits of mining resources to the socio-economic development of the country on the airwaves, newspapers and on the social media.
These debates are usually characterised by comparisons between Johannesburg of South Africa and that of Obuasi in Ghana.
They normally argue that South Africa which was dethroned by Ghana in 2019 as the largest producer of gold in Africa used its gold resource to develop Johannesburg into a world class city.
Paradoxically, while Ghana which was onetime known as Gold Coast because of the huge endowment of gold did not invest in its gold city-Obuasi in the Ashanti Region.
It is not only Obuasi which suffered this non-investment. Gold mining cities including Tarkwa, Prestea, Bogoso and Akwatia all in the Western, Western North and Eastern Region also faced the same challenge.
Also, the environment, wildlife, aquatic lives and water bodies of these cities and other mining communities in the country have been affected by the activities of giant and small mining companies.
As it could not bear it longer, Ghana which has been mining gold and other precious minerals such as bauxite, manganese and diamond for over 100 years, strengthened the current strict mining fiscal regime in 2013.
It was hailed as a good thing that never happened to the country’s mining sector, but mining companies till today are against the regime.
Indeed, Article 257 Clause 6 of the 1992 Constitution of the Republic of Ghana states: “Every mineral in its natural state in, under or upon any land in Ghana, rivers, water course throughout Ghana, the exclusive economic zone any area covered by the territorial sea or continental shelf is the property of the Republic of Ghana and shall be vested in the President on behalf of, and in trust for the people of Ghana.”
This means that Ghanaians are the sovereign owners of the natural and mineral resources and therefore must derive maximum benefits from their exploitation no matter who exploits them.
The mining fiscal regime
| FISCAL INSTRUMENT | APPLICABLE RATE |
| Mineral Royalty | 5% |
| Corporate Income Tax | 35% |
| Depreciation Allowance | 20% up to 5 years |
| Annual Mineral Right Fees | Payable to Mincom as prescribed by LI 2176 |
| Ground Rent | L.I. 2357 (2018) payable annually to OASL |
| Losses carried forward | 5 years |
| VAT | Exploration – capitalized
Mining – Refunded Zero-rated for mineral exports |
| Withholding Taxes | Dividend (8%), MGT (20%) |
| Thin Capitalization | Income Tax Act,2015 (Act 896); 3:1 |
| Free Carried Equity | 10% (Sec 43 of Act 703) |
Source: Minerals Commission, Ghana
Principal Research Analyst at Ghana’s Minerals Commission (Mincom), Wisdom Puplampu explained: “Fiscal policy seeks a fair sharing of revenues generated while attracting investment into the mining sector.
According to him, it also seeks to ensure that revenues from mining projects are shared between the state and company/investor.
Companies that are carrying on mining activities in the West African are required by law to pay royalties and taxes to the Ghanaian government.
They also mandated to honour other tax obligations such as corporate tax, rental charges with respect to the area to which the mining right relates, stamp duty (on instruments and documents) and business operating levies and property rates (to local government authorities in areas of operation), according to Mr Puplampu.
Corporate tax which used to be 25 percent in 2012 was increased to 35 percent for mining companies and a uniform regime for capital allowances of 20 percent for five years for the mining sector.
While a 10 per cent windfall tax levy on mining companies was announced in 2012, but is yet to be passed into law.
The royalties’ payments are revenue-based which is fixed at 5 per cent of total revenue obtained from mining operations, but corporate tax is profit-based.
Mr Pulplampu was quick to add that a holder of a mineral right is required to pay an annual ground rent to the owner of the land or successors.
While annual ground rent in respect of mineral rights over stool lands is normally paid to the Office of the Administrator of Stool Lands (OASL).
Since 2013, the annual ground rent has been increased from about $0.25/km2 to $18.57/acre, which is equivalent to $4,590.99/km2.
Tax advantages and incentives for mining companies
Mining companies can take opportunities of taxes and incentives available to them.
These include: reduced customs import duties in respect of plant, machinery, equipment and accessories imported specifically and exclusively for mineral operations (items named in the Mining List); transferability of capital; transferability of dividends, or deferment of stamp duty; immigration quotas in respect of the approved number of expatriate personnel; personal remittance quotas for expatriate personnel free from any tax imposed by any enactment for the transfer of external currency out of Ghana; and alternative dispute resolution provisions.
Tax stabilisation
Ghana’s Minister of Lands and Natural Resources can as a part of a mining lease enter into a stability agreement with the holder of the mining lease subject to the ratification of Parliament to ensure that the holder will not, for a period not exceeding 15 years from the date of the agreement, be adversely affected by a new enactment, order, instrument or other action made under a new enactment or changes.
On the advice of the Minerals Commission, the Minister of Lands and Natural Resources may enter into a development agreement under a mining lease with a person where the proposed investment by the person exceeds $500 million.
According to him, a development agreement may contain provisions relating to the mineral right or operations to be conducted under the mining lease.
The Minister of Lands and Natural Resources will exercise a discretion conferred by the Minerals and Mining Act on tax stabilization and environmental issues and obligations of the holder to safeguard the environment in accordance with any enactment and dealing with the settlement of disputes.
It is important to note that any development agreement is subject to ratification by Parliament.
The table below shows royalties and corporate tax
| YEAR | GOLD PRICE $ | ROYALTY GHC | CORPORATE TAX GHC | MINING REV GHC | % OF ROYALTY & CIT |
| 2015 | 1,160.06 | 485,632,657 | 320,948,380 | 1,285,581,291 | 62.74 |
| 2016 | 1,250.74 | 550,738,650 | 674,710,692 | 1,633,169,817 | 75.04 |
| 2017 | 1,257.12 | 702,407,281 | 969,567,315 | 2,160,742,773 | 77.38 |
| 2018 | 1,268.49 | 705,465,230 | 470,510,728 | 1,444,120,099 | 81.43 |
| 2019 | 1,392.60 | 1,006,668,500 | 2,269,768,470 | 4,013,367,650 | 81.64 |
| 2020 | 1,735.44 | 775,946,444 | 1,263,215,732 | 2,545,123,917 | 80.12 |
Source: Minerals Commission, Ghana
Carried interest
Without making any financial contribution anything in the mine, the Ghanaian government is entitled to a 10 percent free carried interest in the rights and obligations of the mineral operations where the mineral right is for mining or the exploitation of minerals.
However, the government is not precluded from any other or further participation in mineral operation subject to the agreement of the holder, according to senior officials at the Minerals Commission.
Transfer taxes and capital gains
At a recent minerals capacity building workshop organized by the Minerals Commission for some selected journalists, speaker after speaker emphasized that any gain made on the project or other disposal of an interest in a mining right is included in determining the income of a mining company which is taxed at a rate of 35 percent computed by an operation-to-operation basis.
They added that an instrument transferring a mineral right is required to be stamped where a stamp duty is charged on the consideration paid for the transfer at a rate of up to one per cent, depending on the term transferred.
Domestic and foreign companies or investors are required to pay the same duties, royalties and taxes on their mining activities. But specific mining companies have stability, development or investment agreements, which protect those mining companies against adverse effects from changes in laws including those regarding the fiscal regime.
For instance, Newmont Ghana Gold Limited, Newmont Golden Ridge Limited, Goldfields Ghana Limited, AngloGold Ashanti Ghana Limited, and Abosso Goldfields Limited have negotiated fiscal agreements with the government.
Negotiated Fiscal provisions
| AHAFO | AGA (OBUASI) |
| Up to $1,300 – 3%
US$1,300 – $1,449.99 – 3.5% US$1,450 –$2,299.99 – 4%
US$ 2,300 > – 5% |
Up to $1,300 – 3%
$1,300 – $1,449.99 – 3.5% $1,450 – US$ 1,749.99 – 4% $ 2,000 > – 5% |
| C I T – 32.5% | C I T – 32.5% |
Note: The short form of Corporate Income Tax is (CIT).
Source: Minerals Commission
Employment and foreign exchange
Besides, the mining companies provide thousands of direct and indirect jobs for Ghanaians. They also attract foreign exchange to the country through exports of their commodities.
Still not happy
For instance addressing the 2019 edition of ‘Investing in African Mining Indaba’, the world’s largest mining investment conference, in Cape Town, South Africa,
Ghana’s President, Nana Addo Dankwa Akufo-Addo lamented that it is not right that Africa, which is rich in minerals sought after by the world, should remain inhabited by the poorest people in the world.
He continued: “Africa has made the world rich with our minerals; our gemstones adorn crowns and homes around the world. It is time to make Africa prosperous and enable its people to attain a dignified standard of living”.
Mr Akufo-Addo added that the mining companies in Ghana and other African countries should therefore not expect to make extraordinary profits on the African continent.
The effects of the strict fiscal regime
Although, Ghana is generating revenues since the introduction of the strict fiscal regime, it is becoming unattractive for mining companies.
For instance, mining companies are shunning Ghana for its neighbouring West African countries due to the obnoxious 12.5 percent Value Added Tax (VAT) and other multiple taxes imposed on them by the Ghanaian government.
The Director of External Relations and Communications of the Ghana Chamber of Mines, Ahmed Nantogmah who disclosed this did not mention the names of the companies but said the numbers are a lot.
He continued: “In Ghana, VAT is payable on exploration expenditure and it cannot be recovered by the exploration companies unless they make a commercial find and commence production.
This implies that where exploration is unsuccessful, VAT would not be recoverable. Effectively, the extent of actual exploration activity is diminished by upfront costs such as VAT on inputs.
Thus, relieving the usually illiquid exploration companies from the payment of VAT would not only improve their cash flow and reduce their operational costs but also enhance the country’s image as a competitive destination for exploration investment. In the long-run, this will guarantee continuous mineral production and flow of fiscal and forex receipts as well as other benefits from the minerals sector.
Declining exploration investment
He added that; “exploration investment in Ghana has declined significantly in recent years. This is alarming for a country to which mining is critical for forex and fiscal revenue generation”.
It is also worth noting that the preponderant share of exploration licenses issued by the Ministry of Lands and Natural Resources is held by Ghanaians who are usually constrained in raising capital to finance the high-risk business of exploration.
Why exploration is important
The relevance of exploration in ensuring a pipeline of future viable projects cannot be over-emphasized. It is the single most critical activity that guarantees continuous production of mineral and discovery of new mineral resources to supplement production from existing mines or replace output of mines whose economic ore body is exhausted, Mr Nantogmah stressed.
Given that Ghanaians hold a large share of exploration mineral rights, they stand to benefit if the hurdles of exploration in terms of upfront costs are reduced to facilitate effective exploration and consequent commercial finds, according to him.
Put in place an incentive scheme
In other words, it is crucial to put in place an incentive scheme that will reduce the cost associated with exploration and therefore attract the required critical investments into this high risk business of mineral exploration.
Call for exemptions
As a first step, the mining companies requested the government to exempt exploration companies from payment of VAT on big ticket cost items such as Drilling and Laboratory Services.
Sweeping reforms
Ghana’s West African neighbours are threatening to end the country’s decades of gold mining industry dominance following the introduction of several sweeping reforms in their various countries.
According to the industry experts, these reforms are yielding positive results at the time the world’s largest producers of gold-South Africa and Ghana are catching cold in the more than two years dip in production volumes of gold and its prices on the international market.
Burkina Faso, Cote D’Ivoire, and Senegal often described as newcomers in gold mining are poised to dethrone Ghana from the number one position in the ECOWAS region.
Unlike Ghana, reforms in the mineral code of Burkina Faso have positioned the country as a significant site for exploration in Africa.
Similarly, Cote D’Ivoire revised mining code has been hailed as the “game changer” on the African continent. That Ghana’s western neighbour has overtaken it in terms of green field projects, according to experts.
Senegal is also actively encouraging investments into mining sector. Another area, the three neighbouring countries are leveraging on to take over the gold mining sector is taxation.
Experts say taxes in these countries are less as against Ghana which taxes all the processes of mining.
This single act serves as a disincentive to investors which usually seek to invest in countries with flexible investment climate.
Furthermore, although there are incentives for exploration companies in Burkina Faso, Cote D’Ivoire, and Senegal, these incentives are absence in Ghana.
Gold production
Comparing Ghana’s gold production to its peers, gold output from Ghana increased from 130.7 tonnes in 2017 to 136.2 tonnes in 2018, a lift of 4.6 per cent.
Other countries that recorded significant growth in production include Mali (from 50.4 tonnes in 2017 to 61.2 tonnes in 2018), Senegal (12.3 tonnes in 2017 to 17.5 tonnes in 2018), Burkina Faso (52.6 tonnes in 2017 to 58.4 tonnes in 2018) and Cote D’Ivoire (36.7 tonnes in 2017 to 40.9 tonnes in 2018), according to the 2018 Ghana Chamber of Mine annual report.
As a result of the general improvement in the 8 output of most countries, total gold production from Africa increased by 1.6 per cent to 825.9 tonnes in 2018. However, its share in global gold production was fairly constant at 23.6 per cent in 2018.
In spite of all these positive developments taking place in the neighbouring countries, it appears that the Ghanaian government does not care to lose its mining supremacy.
By Isaac Aidoo, African Eye Report
