Sustainability Levy, others threaten mining industry
Mining companies in the country have outlined a combination of challenges that threaten the sustainability of the industry.
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These include the introduction of the Growth and Sustainability Levy, energy matters, issues with the Income Tax Act, 2015 (Act 896), royalty regime, mineral revenue retention policy and incentives for exploration companies.
In his state of the industry report at the 95th annual general meeting of the Ghana Chamber of Mines, the President of the Chamber, Joshua Mortoti, said the Growth and Sustainability Levy which was a non-deductible expenditure and pegged at one per cent of production was an aberration from global practices as it effectively increased the risk borne by investors in Ghana’s mining sector without a complementary compensation measure from the government.
He said while the chamber appreciated the need for the government to generate additional revenue to address the grave fiscal imbalance in the economy, the introduction of the GSL could foul the taxation environment and turn it into something else from what it currently is.
Mr Mortoti said the levy endangered the continuous operations of some mines and risked curtailing the expected cash flows associated with the introduction of the levy.
“Such an outcome would not only hurt the state’s revenue objectives but also threaten the security of employment, businesses of mining support service firms, as well as mining firms’ continued investment in their host communities,” he stated.
He said the chamber, therefore, urged the government to further engage to find an optimal solution for both parties.
Energy matters
Mr Mortoti also noted that mining companies continued to pay for some of the elements in the price build-up of diesel supplied to them which had little or no bearing on the cost of supplying the fuel to the mines.
He said one of such levies was the ex-refinery price, adding that unlike the retail market, the ex-refinery price of diesel supplied to the mines was largely determined by the National Petroleum Authority (NPA).
“In a sense, the mining industry, and other consumers in the export segment of the petroleum market do not benefit from the gains associated with deregulation.
The Chamber, therefore, proposes that the government should kindly consider allowing market forces to autonomously determine the ex-refinery price of diesel supplied to the mines to help exert downward pressure on prices and improve the service delivery in the supply of diesel to the mines,” he stated.
He said while the chamber acknowledged the debilitating impact of the legacy debts on the sustainability and viability of the energy sector, it was pertinent to note that the mining industry was not a beneficiary of the subsidies that led to the accumulation of debts in the energy sector, and therefore it was unfair to impose a levy on mining companies to recover such debts.
Accordingly, he said the chamber recommended the exclusion of the Energy Debt Recovery Levy from the price build-up of diesel supplied to the mines.
Mr Mortoti also pointed out that in the retail market, where the ex-refinery price of the imported diesel was quoted in the local currency, the Price Stabilisation and Recovery Levy (PSRL) fulfilled its function of offsetting shocks induced by volatility in the exchange rate.
On the other hand, he said the ex-refinery price of diesel supplied to the mines was quoted in United States Dollars and at the full import parity price and companies paid their suppliers in the aforementioned currency.
He said this pricing regime and mode of payment implied that mining companies and other consumers in the export market had inherently insulated the state from the currency-induced movements in the price of diesel.
“Hence, the inclusion of PSRL in the price build-up of diesel supplied to the mines is not only superfluous but also analogous to double taxation,” he stated.
Income Tax Act, 2015 (Act 896)
The government passed the Income Tax Act, 2015 (Act 896) with the overriding objective of expanding its tax base and enhancing tax payments as well as revenue collection.
Following the passage of the Act, Mr Mortoti said the chamber identified a few concerns and raised them directly with the Minister of Finance.
He said some of the concerns were ring fencing which was one of the major and fundamental concepts underlying the entire Act 896.
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In addition to the general provisions on ring-fencing in the Act, there are specific provisions pertaining to the mining industry.
Section 78 (1) provides that subject to this section, the following shall constitute a separate mineral operation: a mineral operation pertaining to each mine, and a mineral operation with a shared processing facility.
Mr Mortoti said in the light of the apparent unintended commercial implications resulting from the definition of “mining area” and the requirement to treat each mining area as a separate operation for tax purposes, together with the practical challenges with the concept of ring-fencing, the chamber proposed that the GRA took a second look at the enforcement of the provisions as it dialogued with the chamber to find a common position.
Incentives for exploration companies
The President of the Chamber also noted that exploration investment in Ghana had declined significantly in recent years, which was alarming for a country where mining was critical for forex and fiscal revenue generation.
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He said it was therefore crucial to put in place an incentive scheme that would reduce the cost associated with exploration and attract the required critical investments into this high-risk business of mineral exploration.
“As a first step, we request the government to exempt exploration companies from payment of VAT on big-ticket cost items such as drilling and laboratory services,” he stated.