As government takes measures to shore up Ghana’s domestic revenues, some tax experts are urging a review of the tax and incentives regime in the country’s extractive sector to rake in more into the revenue kitty.
When resource rich developing countries like Ghana negotiate with oil companies to exploit natural resources, the companies get a lot of freebies such as tax incentives which include repatriation of profits outside the country without paying taxes. This contributes to huge revenue losses to government.
In a bid to woo investors into Ghana’s oil and gas industry, strenuous efforts were made to de-risk the country’s oil fields. This paves the way for the international oil companies to move in and conduct their activities with less uncertainties, unlike other jurisdictions where the risk is higher because exploration activity may not have commenced.
De-risking Ghana’s oil fields should put government in a stronger negotiating position to sign contracts with better fiscal terms. However many are of the view that it appears Government must have been intimidated by the so-called oil giants and in some cases bend the rules in favour of the oil super majors, a situation that does not augur well for the countryin dire need of revenue .
Tax expert, Mr Eric Amponsah-Boateng is convinced government could rake in more revenues if tax incentives given to multinational companies, especially in the extractives are not made indefinite. He is of the view that “after about 10 years the incentives should be withdrawn by which time the companies will be able to re-invest what they have made and pay the appropriate taxes.”
Mid-year budget review to introduce new tax policies
The Minister of Finance, Mr Ken Ofori Atta is set to present to Parliament a package of tax policy measures as part of efforts to ensure sustained funding for government’s key programmes.
This is at a time domestic revenue mobilization is proving to be a challenge, as the Ghana Revenue Authority (GRA) makes strenuous efforts to meet revenue target. Probably, it is about time, the Finance Minister extended his tentacles to the extractives and see what could be changed or negotiated better to increase the country’s revenue. The passion to mobile tax revenue has been palpable in recent times and it will not be out of place to stretch that passion to the oil and gas sector especially with incoming contracts.
Reversal of tax exemptions policy was welcome
Ghana’s Ministry of Finance in 2017 undertook some measures to block revenue leakages by reviewing the tax exemptions regime.
It introduced a system which required exemption holders to pay in advance all applicable import duties and taxes and apply for a refund with supporting evidence.
The Ministry however reversed the tax exemptions policy following persistent backlash from members of the business community who described the earlier measure as unhelpful.
It is possible same resistance could be met if attempts are made to get more from the oil companies upstream. None the less, it is a cause worthy of pursuit especially when experts have affirmed that most African countries are racing to the bottom with huge tax incentives that tend to hurt the ailing economies. Probably our best bet is to get better deals from the Exxonmobil deal and incoming contracts and not another package of exemptions as it is being suggested by people who are privy to the contract document.
Exemptions on Imports and Exports
Government, in its attempt to encourage exports in its “Ghana is open for business” policy, exempt export duties on export of upstream petroleum products. Also, goods imported for upstream petroleum operations are exempt from import duties. The sale of an exempt item by a contractor to another petroleum contractor remains exempt. However, the sale of an exempt item by a contractor to a non-petroleum contractor attracts duty if the item is ordinarily dutiable. The duty is assessed at the duty rate prevailing on the date the asset is transferred. Some of these exemptions could be reconsidered as the Finance Minister find ways of increasing his revenue.
Sweeping tax waivers in latest petroleum agreement worrying Ghana’s existing petroleum agreement with oil major, Exxon Mobil (in its current state) is awash with waivers and tax exemptions which have led experts to describe the fiscal terms in those contracts as “worrying.”
Chairman of the Public Interest and Accountability Committee (PIAC), Dr Steve Manteaw described what happened in respect of the Exxon Mobil agreement as “a violation of the law.”
“When you can recover your capital allowances over five years, in the Exxon Mobil contract we made it 10 years; it’s a clear violation of the law,” he stated.
Law professor Raymond Atuguba has said the issue of tax incentives and waivers extended to multinational companies, especially in the extractives sector, needs to be substantially changed “if Ghana is serious about promoting long- term economic development.”
He maintains that company tax payments are minimal due to low tax rates, while governments often provide companies with generous incentives such as corporation tax holidays.
On lessons Ghana could learn from the mining sector to make governance of the oil and gas sector better, Dr Manteaw, who is also Co-Chair of the Ghana Extractive Industries Transparency Initiative (GHETI) stated that Ghana must review its tax rates regularly and bring them abreast with the times.
“At no time should the cost of collecting a tax be more than the tax itself; we must stay away from stability agreements in the oil sector if we can, if not, we must make them two-way street,” he added.
As the Finance Minister prepares to introduce new tax policy measures, some attention could also be directed at the extractives. It is possible that stability clauses in those oil and gas as well as mining agreements could hamper that effort. But it should not be so with the incoming contracts, after all we should be getting better dividends for our uninterrupted multiparty democracy and say no to those stability clauses.
By Isaac Aidoo