Tax Expert, Abdallah Ali Nakyea is urging the Ghanaian government to consider reviewing royalty rate charged mining companies in the country upwards and cut down corporate income tax to improve revenue mobilization.
Speaking exclusively to this reporter at the side lines of a workshop on “addressing shortfall in minerals revenue management” organized by the Institute and Financial Journalists (IFEJ) in partnership with GIZ, Mr. Nakyea observed such a move will enable the government to raise the much-needed revenue to develop resource-rich communities.
According to him most countries which fix high rates for royalties instead of the corporate income tax do so because of certainty.
Mr. Nakyea, who is a Tax Attorney, Solicitor & Consultant said, “In most countries, they have the option of looking at royalties rather than corporate income tax because of the issue of certainty of inflows. So as long as you are where we call the production point, you have a quantity of mineral, you know the market value and then the royalty is calculated on it. You don’t have deductions against it, there are no cost element in determining the royalty.”
He explained there is no certainty attached to corporate income tax hence the state may not be assured of revenue since the companies would have to offset their costs before paying that tax.
“If you take the corporate tax, you are now going to have deductions of allowable expenses, capital allowance and after that it may even throw your operations at a loss and there will be no corporate income tax or it will be left with minimal amount for corporate tax so there are those who advocate that you may have to look at taking royalties and dispensing off the corporate tax.
Others also say the royalty figure should be higher than the corporate tax to balance it so these are options most countries also look at and that is why I said we can also look at it and see which of them is beneficial. We are looking at a win-win situation because royalty is a cost of doing business and mining companies can deduct it as part of operational cost so it doesn’t lose after paying it and that is why I think these are options we can explore, Mr. Nakyea observed”
Countries including Chile, South Sudan, Libya and Zambia the expert disclosed have a fiscal regime where they charge higher royalty rate than corporate income tax in the mining sector and urged the country to consider a similar arrangement to be able to raise enough revenue to improve conditions in mining communities.
Ghana has presently charges mining companies a fixed royalty rate of 5 percent and 35 percent corporate income tax.
According to page 78 of the “Ghana Extractive Industry Transparency Initiative (GHEITI) Report on the Mining Sector for 2012 and 2013,” the West African country generated a total of US$ 368,864,143 from mining royalties as against a corporate income tax of US$ 456,747,172 in 2013.
In the oil and gas sector, the Public Interest and Accountability Committee (PIAC) reported on page 28 in its “Annual Report on Management of Petroleum Revenues for Year 2016” that the state generated an amount of US$ 58.23 million from royalties as against US$ 29.55 million corporate income tax.