“Transfer pricing in the extractive sector is one major challenge”

Transfer pricing in the extractive sector is one major challenge that revenue institutions must overcome because of its negative effect on revenue collection, Finance Minister, Mr. Seth Terkper has said.

“The issue of transfer pricing is sophisticated and complex in nature, and it has the potential of seriously eroding the tax base. 

“Most extractive companies operate internationally and have extended dealings with affiliated companies, which increases opportunities for transfer pricing and potentially lowers the tax liability,” he said.

Expressing concern about the lack of capacity for the revenue collecting agencies to monitor tax players in the extractive industry appropriately at the launch of the Ghana Extractive Industry Transparency Initiative reports (GHEITI) on the mining, oil and gas sector for 2012 and 2013 in Accra, Mr. Terkper called for comprehensive training of tax administrators.

Tax administrators need better training on how to recognise the transfer pricing opportunities in mining operations, and stronger capacity to detect and respond to this problem, he said.

Launch of the two reports brings to 10 the total number published since Ghana acceded to the initiative in 2003, and they are published in conformity with the EITI standard adopted by the Sydney Global EITI conference in 2013.

The initiative, therefore, seeks to improve transparency and accountability in countries dependent on revenues from oil, gas, mining and other natural resources.

The Chief Director at the Ministry of Finance, Major M.S. Tara (rtd.), said the EITI is making a number of direct and indirect contributions to good governance with respect to natural resource revenues.

“EITI is about promoting transparency and accountability within the extractive sector, in ways that support string development impact in the country and extractive communities. The EITI reports will therefore serve as a basis for discussions on the appropriate use of natural resource revenues to the benefit of the Ghanaian society as a whole,” he said.

The report observed that the award of oil blocks/licencing through an open door negotiated process by the Ministry of Energy and Petroleum is not an open process, and may lead to awarding oil blocks to inefficient operators.

It recommended that to ensure transparency and efficient management of petroleum resources, the ministry should introduce licencing rounds, including bidding, and also make available on its website details of contracts with operators.

The report advised the Petroleum Commission to as a matter of urgency establish an online repository where information on upstream petroleum blocks are found. Such information is to enhance transparency and improve the Commission’s efficiency in operations.

According to the report, there were discrepancies in both 2012 and 2013.

In 2012, there was a net discrepancy of GH¢3.16million, whereas in 2013 the net discrepancy was GH¢3.10million.

The unresolved discrepancies are 0.28 percent and 0.7 percent of total receipts by government agencies in 2012 and 2013 respectively. 

Corporate tax has also exceeded mineral royalty for three consecutive years, and this may require further investigation and actions to ensure the sustainability of mining revenues.