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RECENT TRENDS & DEVELOPMENTS IN GHANA’S MINING FISCAL REGIME B.N.A. Aryee Advisor (Mining) Ministry of Lands & Natural Resources, Ghana.

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Presentation on theme: "RECENT TRENDS & DEVELOPMENTS IN GHANA’S MINING FISCAL REGIME B.N.A. Aryee Advisor (Mining) Ministry of Lands & Natural Resources, Ghana."— Presentation transcript:

1 RECENT TRENDS & DEVELOPMENTS IN GHANA’S MINING FISCAL REGIME B.N.A. Aryee Advisor (Mining) Ministry of Lands & Natural Resources, Ghana

2 PRESENTATION OUTLINE Background & Introduction Rationale for Recent Mining Fiscal Regime Reform Recent Trends in Ghana’s Mining Fiscal Regime Other Developments Guidance Questions & Answers

3 Ghana is a significant gold producer in Africa (second after South Africa) and globally, being the 9 th largest producer in the world. In 2013, Ghana produced about 4.3 million ounces of gold, only a marginal decline from the 2012 highest ever production in the history of the country, BACKGROUND & INTRODUCTION

4 MINING SECTOR OVERVIEW Investment inflows for mining from 1983 to 2013 was about US$13.7 billion Gold production for 2013 was 4.3 million ounces.

5 OVERVIEW: MINERAL PRODUCTION

6 OVERVIEW: MERCHANDISE EXPORTS

7 The significant investment over the years and consequently mineral outputs led to an increased sector contribution to the economy of:  28% of Government revenue as collected by the Ghana Revenue Authority in 2012  Export revenues from the mineral sector amounted to US$5.1 billion in 2013 & accounted for  42% of total merchandise export in 2012  Employed 28,000 for large scale and estimated over 1 million people for small scale mining. MINING SECTOR OVERVIEW

8 RATIONALE FOR THE RECENT REVIEW OF THE FISCAL REGIME 1 Speaking at the recent World Economic Forum in Davos, Switzerland on challenges in the mining sector, President John Mahama explained that Ghana is having http://business.peacefmonline.com/pages/news/201401/186799.php issues with the big mining companies that have stability agreements that locked in the level of royalties and taxes for us. So when gold prices rose up to a record high we could not earn more “ issues with the big mining companies that have stability agreements that locked in the level of royalties and taxes for us. So when gold prices rose up to a record high we could not earn more.”

9 RATIONALE FOR THE RECENT REVIEW OF THE FISCAL REGIME 2 “During the recent … prices of gold, … reached their peak levels ever. Yet the country did not benefit at all from the price hikes, particularly from gold,” economic and social benefits provided by the mining sector did not match government’s expectations, hence its decision to review the industry’s taxes - the issue with mining was … fair and transparent sharing of benefits and windfall gains from the exploitation of the country’s precious and irreplaceable natural resources. Thus, government is taking a bold step to critically review the fiscal regimes and mining agreements, with the view of ensuring that the country benefited adequately and fairly from the gains in the mining sector. - Dr Edward Larbi-Siaw, Tax Policy Advisor of the Ministry of Finance; (May 2013)

10 RECENT TRENDS IN GHANA’S FISCAL REGIME ITEMSMCD 5, 1975 PNDCL 153, 1986 AMENDMENTS TO PNDCL 153 ACT 703, 2006 AMENDMENTS TO ACT 703 Gold export levy 6% Mineral duty 5-10%Repealed Import duty5-35%Repealed Foreign exchange tax 33-75%Repealed Import license tax / import levy 10%Repealed

11 RECENT TRENDS IN GHANA’S FISCAL REGIME ITEM SMCD 5, 1975 PNDCL 153, 1986 AMENDMENTS TO PNDCL 153 ACT 703, 2006 AMENDMENTS TO ACT 703 Pre-prdn Cost Capitalization & Capital Allowances 20% initial; then 15% DB 75% initial; then 50% DB 20% SL Investment Allowance 5%5%5% Loss CF Up to 5 Yrs Forex Retention [25-80%] Offshore [25-80% - 20% Onshore] Import Duties Exempt (*) Royalty6%6-12%3-6% 5% {Act 794} Corp Inc Tax 50-55%45%35%25% 35% [mining] APT /WFPT 25% on 35% IRR {10% proposed ) * plant, machinery and equipment imported exclusively and specifically for Mining

12 RECENT TRENDS IN GHANA’S FISCAL REGIME ITEMSMCD 5, 1975 PNDCL 153, 1986 AMENDMENTS TO PNDCL 153 ACT 703, 2006 AMENDMENTS TO ACT 703 Withholding Tax 10% 15% Capital Gains Tax 10% 15% National Reconstruction Levy 2% of pretax profits(2001) Equity Participation 10% free carried Interest ; + option of 20% shares at mkt price 10% free carried interest StabilizationDeed of Warranty on Ltd Fiscal Terms broad Stability & Devt Agree- ments Since 2012, mining companies operating in Ghana have been subject to the following taxes: Corporate tax: 35 percent Capital gains tax: 15 percent Withholding tax: 15 percent Capital allowances: 20 percent for five years In addition, the mining companies are required to pay a royalty of 5 percent of their total revenues.

13 Revised Fiscal Provisions During 2010 - 2012: – royalty rate increased from a sliding 3-6 per cent to a fixed 5 per cent rate; – corporate tax rate was increased from 25 to 35 per cent; – Capital gains & Withholding taxes: 15%, up from 10%; – 80%, then 50% Declining Balance Capital Allowance; replaced by uniform 20% for 5 years regime; and – windfall profit tax at a rate of 10 percent for all mining companies was proposed, but shelved

14 Other Developments Improving “Arms-length” Dealings Framework – Transfer Pricing Regulations; L.I. 2188, 2012 Renegotiation of “Stability” Agreements, for simplification, clarity, and equity; Amendment of Minerals and Mining Act, Act 703 of 2006, under way (& further Amendments being considered); Formalization of Community Interests – MDF legislation almost ready for Parliament; Improved Stakeholder Engagement, for transparency and good governance, e.g. EITI ; Active Involvement in REC (ECOWAS) policy & legislation harmonization drives; also Continental (AU/UNECA) Initiatives; Ghana’s Application to AMDC to support its adoption of CMV process.

15 ANSWERS SOME GUIDANCE QUESTIONS & ANSWERS

16 Which elements of the reform package attracted the strongest reactions from the mining companies & why? windfall profit tax Mining firms blackmail Ghana over windfall profit tax President John Mahama told the World Economic Forum in Davos … that his government has not been able to implement the policy due to threats from the mining companies. … They will not allow us to implement a windfall tax in our country “They threatened to lay off workers if we implemented the windfall tax and because we needed the jobs and you don’t want workers laid off you are coerced to go along. So these are major issues we have, … They will not allow us to implement a windfall tax in our country”, President Mahama said. “BAD” TIMING; GOLD PRICE DIPPED SOON AFTER PROPOSAL. “BAD” TIMING; GOLD PRICE DIPPED SOON AFTER PROPOSAL. http://sankofaonline.com/mining-firms-blackmail-ghana-over-windfall-tax-4700-illigal-miners-deported-mahama/

17 Which elements of the fiscal reforms proved most difficult to implement and why? Ring-fencing provision Mining Area Act 839 (2012) had a provision requiring mining companies to match expenses from one Mining Area to revenue from the same mining area; but Mining Area as defined by the Mineral and Mining Act, 2006 Act 703 was not for tax purposes & impeded implementation. INADEQUATE CONSULTATION AMONGST AGENCIES INADEQUATE CONSULTATION AMONGST AGENCIES

18 Would you regard the fiscal reform exercise as having met its objectives? YEAR MINERAL ROYALTY GHC CORPORATE TAX GHC2013364,673,038518,545,259 2012359,392,853893,773,828 2011222,027,706649,902,536 2010144,697,345241,578,780 Yes, as shown below, Royalty collections rose dramatically between 2010 & 2012 due to the increase in rate, but impact was dampened in 2013 due to the fall in gold prices. Corporate taxes also improved due to the application of new tax rates and capital allowance.

19 What are the main lessons that you draw from Ghana’s mining fiscal reforms? What are the main lessons that you draw from Ghana’s mining fiscal reforms? To achieve and sustain the gains: Need for adequate stakeholder consultations to have the desired impact Need for adequate stakeholder consultations to have the desired impact Government should be more proactive and react quickly to the changes in the mining industry Government should be more proactive and react quickly to the changes in the mining industry, e.g. Government would have benefited more from gold price hikes if reforms were undertaken earlier, say btn 2008-09 Fiscal reforms should also aim at maximising revenue without necessarily increasing taxes Fiscal reforms should also aim at maximising revenue without necessarily increasing taxes eg. By facilitating (i)Broadening tax base; (ii)Diversifying mineral resource base; (iii)Enhanced value addition, beneficiation and local content & linkages in general. Need to fashion suitable and sustainable tax system to meet the needs of small scale miners Need to fashion suitable and sustainable tax system to meet the needs of small scale miners.

20 THANK YOU FOR YOUR ATTENTION 20


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