Is windfall tax on the back burner?

The election of John Dramani Mahama as President brings renewed concern about a windfall tax on miners.


Government in its 2012 budget statement announced that the corporate tax rate for miners is being increased from the 25percent to 35percent, while a windfall profit tax of 10 percent will also be imposed.  It also planned a uniform regime for capital allowance of 20 percent for five years of mining.

The windfall tax was deferred, while the other two proposals were passed.

Clarus Securities analyst Nana Sangmuah has suggested that these discussions may return to the forefront as the controversy surrounding the thresholds for applying the windfall tax has not been clarified.

“A reintroduction of this bill in parliament could negatively impact the outlook on miners and developers with exposure to the country,” Mr. Sangmuah said.

He highlighted Golden Star Resources Ltd. and Perseus Mining Ltd. as the two producers with full exposure to the country.

The analyst observed that Newmont Mining Corp., Kinross Gold Corp., Gold Fields Ltd. and AngloGold Ashanti are producers with partial exposure, while Keegan Resources Inc., PMI Gold Corp. and Azumah Resources Ltd. are also developers with exposure to the sector.

Reactions have so far been mixed -- with mining firms fretting over the impact the measures would have on their earnings and investments even as groups such as the Ghana Mineworkers’ Union celebrate the changes.

In the wake of the announcement of the new taxes, Dr. Toni Aubynn, Chief Executive of the Ghana Chamber of Mines, worried that the new reforms could deter mining companies from making further investments in the sector.

“Uncertainties must be looked at carefully. The country’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 scaring off investors,” he said.

The Chamber of Mines has warned that the new tax measures need to be implemented ‘scientifically’ because high gold prices do not necessarily mean mining companies are making more money.

According to the Chamber, some gold miners are currently producing at US$1,200/oz.
At that rate, their gold mining costs appear to be far above the average for the continent.

Ernst & Young, the global accounting and consulting firm, reported that for 2011-2012 the number-one  risk for miners is resource nationalisation (number four in 2010), which involves countries attempting to get more money from their minerals.

The report said resource nationalisation takes many forms, including increased royalties, taxes and mandatory participation whereby governments mandate the involvement of certain stakeholders.

The mining and metals sector rebounded quickly from the global financial crisis, making it an early target to restore treasury conditions, the report said.


“Government officials have sought to assuage miner’s concerns about the new taxes. Seth Terkper, Deputy Finance Minister, in a recent engagement with representatives of mining firms, said: “The changes in the taxes are part of a rationalisation plan.”

Later on, other natural resource sectors will be brought on board. So, it’s not about targetting mining companies; and they are not meant to be anti-investment.

He assured that the tax initiatives are not intended to be punitive nor a deliberate attempt to cripple the mining sector.

The introduction of the new tax measures, according to him, is intended to create an enabling environment for the country to derive maximum economic and social benefits from the industry. 

“As partners in development, the time has come for the mining sector to contribute its due share to the development of the country,” he said.

Civil society organisation commended government for the bold move, in particular for measures to rationalise fiscal operations in the natural resource sector. 

Others, especially the mining community that has been hard hit by the proposals, are unhappy and have called on government to take a second look at them.

But the Private Enterprise Foundation (PEF), private sector umbrella-body, does not think the issue is necessarily so.

PEF President, Asare Akuffo, opined that the corporate tax hike is in order since government and the country should benefit more from the mining sector.

He however cautioned government to reconsider the proposed windfall tax on the mining companies.

“Companies thrive on profit; the reality in business however is that there are periods of losses and the savings made in good times are what keep the companies in operation,” 

Mr. Akuffo said, adding that the windfall tax may be a disincentive for future investments in Ghana’s mining sector. 

Mining sector operators proposed an intensive dialogue with government for possible and future negations regarding mining tax reforms.

“It appears it was difficult for government to dialogue with us, the mining operators, concerning the introduction of the new mining tax. We are ready to dialogue with government to ensure that the country maximises revenue from mining rather than deterring investors,” said some mining operators.

Mining revenues already substantial
 

The Ghana Chamber of Mines figures have revealed that total investment inflows into the country’s mining sector increased from US$770million in 2010 to US$780million in 2011.

The total mineral revenue of producing-member companies of the Chamber also rose from US$3.7billion in 2010 to US$4.8billion in 2011, representing an increase of 28percent -- primarily on account of the increased price of gold and manganese in the period.

The proportion of mineral revenue returned to the country increased appreciably from 68 percent in 2010 to 75 percent in 2011.  

During 2012, the industry contributed about 40percent of the economy’s total mechanised exports.

The sector accounted for approximately GH¢1billion of government revenue, representing 27.61percent of total Ghana Revenue Authority (GRA) collections in 2011. 

Mining operators continue to meet their company-tax obligations which cover corporate tax, withholding tax and levies.

This was 38.27percent of the total company tax that GRA collected in 2011. On this account, the sector maintained its position as the highest contributor of company tax during the year.