By Hon. Dr Kwabena Duffuor, Minister of Finance and Economic Planning, Ghana:
The mining sector has been an important part of our economy, with gold
accounting for over 90% of the sector’s output. Ghana is a significant
gold producer in Africa and indeed in the world. Ghana is ranked
second after South Africa as the leading gold producer in Africa, and
9th largest producer in the world.
Over the past decade, the price of gold has increased significantly,
reaching an all- time high of USD1,895 an ounce in September last
year. Given that the country’s mining sector consists mostly of gold
mines, one would have expected a higher fiscal take by the Government.
Unfortunately, the phenomenal increase in gold price has not
sufficiently benefitted the people of Ghana. Indeed, many ordinary
Ghanaians, mining workers, mining experts, politicians, media
commentators, researchers, local and foreign institutions, etc., are
all expressing concerns and reservations about the social and economic
benefits that the formal mining sector provides to the country and
people of Ghana.
Although the Government has a 10% free carried interest equity in the
mining operations, the return depends on dividend distribution which
until now has brought in very little revenue as many of the mining
companies have not declared much by way of dividends. It is also
alleged that there are significant tax leakages in the mining sector
due to such factors as transfer pricing related to operating costs and
the financing structure used by some mining companies.
In responding to the benefit challenge, Government made some changes
to the mining taxes and capital allowance granted to mining companies
in the 2012 Budget Statement. Government increased the corporate tax
rate for mining companies from 25% to 35%; introduced a windfall
profit tax of 10%; and established a uniform regime for capital
allowance of 20% for five years for mining, as is the case in the oil
and gas sector.
In addition, Government took a decision to ring fence mining
concessions and projects which will prevent cost in one concession
area to be offset against revenues from another concession area
belonging to the same company in determining the chargeable income for
tax purposes. This decision, we believe, will prevent mining companies
undertaking a series of projects from deducting costs for new projects
against profitable ventures yielding taxable income.
Government has also taken a bold step to critically review the mining
sector’s fiscal regime and existing mining agreements, with the view
to ensuring that the country obtains its fair share of the gains from
the mining sector. The ultimate objective of this exercise is to
ensure that the benefits from mining operations to the country are
maximized, sustained, and distributed equitably to the people of
Ghana.
The key tasks of the Re-Negotiation Team are three-fold. The first
task is to review and re-negotiate any part of a Stability Agreement
that has been signed between the Republic of Ghana and any mining
company that is not in the best interest of the country. This will
include, among others, the fiscal regime and the Government’s carried
and participating interests. In doing so, the Committee should take
cognisance of the recent developments in both the local and
international environment within which mining companies operate,
international best practices, mineral laws of the country, and our
national Constitution.
The second task is to prepare a framework or procedures and conditions
that will govern the granting of Stability Agreement in the mining
sector in a manner that maximizes the flow of economic and social
value to the country on a sustainable basis.
The third task is to redesign any existing mining agreement and/or
draft new agreement, where necessary, to ensure that it significantly
supports Ghana’s economic growth and development, in terms of
providing better financial returns, more social investment, critical
infrastructure and greater transparency in the mining operations.
The issue with the mining operations is about fair and transparent
sharing of the benefits and windfall gains from the exploitation of
the country’s precious and irreplaceable natural resources. Government
is also committed to ensuring that mining operations in the country
expand and become more profitable so that investors can receive
handsome returns for their investment. It is the desire of the
Government to see that a level-playing field is established for the
industry players. What Government is looking for therefore is a
win-win situation in which both the mining companies and the people of
Ghana will equally benefit. The importance of the Government strategy
is to develop an economy that works for everyone.