Government is establishing a framework to repay more than GH¢ 250 million in VAT refund owed mining companies who are worried about the lock up with government.
Finance Minister, Mr Seth Terpker in an interview at a media briefing in Accra said that the government is instituting the necessary measures for a refund of the VAT surplus to mining companies.
“It is true that we owe the mining companies so much, but we have begun instituting the necessary framework to refund those monies to them and we are also in discussions with the mining firms in that regard”, Mr Terkper said.
Chief Executive of the Ghana Chamber of Mines, Mr Sulemana Koney is worried that the delay in the refund to mining companies VAT surplus estimated at GH¢250 million is affecting the cash flow position of the companies.
“The government was benefiting from mining companies by way of inordinate delays in the refund of surplus VAT, which was estimated at about GHC250 million as of June 2014”, Mr Koney said at a day’s workshop on mining organised by the Journalists for Business Advocacy (JBA) in Accra.
Mr Koney shares the view that one motivating factor that seems to encourage such excessive taxing is the ‘Cash Cow Syndrome’ cautioning that the mining industry should not be seen as a cash or fat cow but rather as catalysts for national development.
“Our concern is that production is going down,” Mr Koney stressed, and added that the high cost of production is a key factor that must be considered in addressing the production deficits.
He cites the very distinct electricity tariff regime for mining companies as well as special petroleum tax. On the petroleum tax he said; “we already pay a premium and there is 17.5 per cent being slapped on that. If costs are too high, our competitiveness will be eroded”.According to him, on a monthly basis, the mining sector cross subsidised the consumption of social fuel such as premix by about US$5 million.
Mining companies in Ghana face the brunt of a business unfriendly tax regime, some analysts say. And yet, there have been calls for more taxes with suggestions for the replication of a controversial Zambian model that the Zambians themselves have abandoned.
The Zambian government in response to popular concerns for more mining revenue for the State increased royalty to be paid by mining companies to a whopping 20 per cent. That spelt doom for the mining industry; ultimately, the government realised that the mining industry was not so fat a cow. “That killed a lot of the companies and the new regime has renegotiated the fiscal regime,” Mr Koney stated.
One pressing challenge Ghana faces is how to sustain the gains that have been made partly as a result of the investment in the past. Cote d’Ivoire and Burkina Faso, two of the country’s neighbours have turned on an aggressive pursuit for mining investment.
Their strength, unlike Ghana, is that they do not charge taxes on exploration. Mining companies in Ghana are worried that that may give them some edge and ultimately impact on the ability of the mining industry in Ghana to attract more FDIs.
Because of the risks involved in exploration, some analysts believe that charging exploration taxes is inimical to the growth of the industry in Ghana. Mr Koney enforces this view and argues that any discussion on the mining industry should be placed within the context that it is a risky business.
Indeed, mining exploration is believed to have a success rate of just about 20 per cent and it is an area many governments, including the Ghanaian government, have kept their investments from.
Where do the royalties go?
Nine per cent of royalties paid by mining companies is expected to be used to develop the mining communities. The utilisation of these monies after it they are paid to the State is as opaque as an eclipsed moon.
When it comes to the utilisation of mining royalties, there are serious transparency issues; “There is no transparency in mining revenue use. The only transparency is in the payment of royalties,” CEO of the Ghana Chamber of Mines, Mr Sulemana Koney, recently noted at a day’s workshop on mining organised by the Journalists for Business Advocacy (JBA) in Accra.
The royalties paid to mining communities may not be getting optimised utilization, one may easily discern.
Mr Koney fears the priorities have been lost; “for instance, between 2011 and 2013, US$854,407,800 was ploughed back into seven mining districts but was there a manifestation of commensurate development?” he questions.
He explained further that 30 per cent of the nine per cent of royalty paid to the district assemblies was used in the management of waste and queried whether it was a judicious way of exploiting revenue from a finite resource.
“This is a finite resource. It will finish one day. What plans are we putting in place to ensure that we have balanced development?” he asks.
While waste management is an important area, the absence of easily measurable outputs as against the financial inputs made, makes it easy alibi for wasteful dissipation of resources.
At the heart of the challenge is the absence of Mineral Management Revenue Act, which mining companies argue will also make government more responsible in the utilisation of mining revenue.