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Ghana windfall tax on mining in limbo

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miningThe windfall tax on mining companies proposed by the government last year has been in limbo, but it is likely discussions on the matter will return after the election of incumbent John Dramani Mahama as president.

Ghana, the second largest producer of gold in Africa proposed a 10 per cent windfall tax, and increased the corporate tax for mining firms from 25 per cent to 35 per cent in its 2012 budget with an aim of boosting revenue collection from the sector and making inroads into reducing the country’s sizeable fiscal deficit.

Though the ruling government passed the corporate tax bill, the windfall tax was deferred due to its complex nature.

According to industry regulator Ghana Minerals Commission, there are areas that need careful analysis to decide whether the tax is the best option.

“For example, we are being told that we may lose mining royalties if we started collecting windfall tax, so we thought we needed to tread cautiously,” the Chief Executive of Minerals Commission, Ben Aryee, told Reuters on September 11, 2012.The mining sector is currently one of the country’s primary revenue pillars,  representing 38.27 per cent of total company tax collected by the Ghana Revenue Authority in 2011.

Ronak Gopaldas, Country Risk Analyst at South African based Rand Merchant Bank told ghanabusinessnews.com in an interview that Ghana’s government is keen to ensure that the country enjoys more of the economic benefits of its mining industry, particularly across the regions.

Its challenge, however, he said, will be to strike a balance between increasing the demands it makes of foreign mining operators and maintaining an investment-friendly environment as it looks to encourage industry expansion and attract funding for new ventures.

But, reactions to the proposed windfall tax have been mixed – the Ghana Chamber of Mines, an umbrella body for mining firms is worried about the impact the tax would have on the earnings and operational costs of its members, whilst the International Monetary Fund (IMF) and National Coalition on Mining (Ghana) are putting pressure on the government to implement the tax.

The IMF has been a strong proponent of these new tax-reform measures, stating that Ghana has not benefitted enough from rising gold prices, said Ronak.

“Ghana’s new tax moves have brought forth warnings and cautions about the impact these measures could have, such as making the nation unattractive for future mining efforts and scare off investors,” added Ronak.

However, he said, it is expected that Ghana will  remain one of Africa’s havens of peace and stability in the coming years, and thus investment will continue to flow into the sector.

“Unlike much of West Africa, political risks are minimal. The key challenge to investment over the coming years is the state of the country’s infrastructure, in particular support infrastructure for large industries such as mining and manufacturing.

“The provision of both power generation and freight transport services has proven to be major obstacles to mining production in recent years.”

By Michael Sarpong Bruce

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