Mohammed Amin Adam, IBIS Ghana: Fair Taxes for Development Financing
Fair Taxes for Development Financing the case of Oil and Mining Companies andresponsible Corporate Tax Behaviour in Ghana A Conference on Tax and Corporate Responsibility Copenhagen June 21, 2012 Mohammed Amin Adam
Presentation format• Tax Issues are CSR issues: the Principles• Oil and Mining Companies and corporate responsibility on Tax – Are they paying fair taxes – Mineral tax reforms – The response of mining companies – Ghana’s lost oil taxes• Are oil and mining companies in Ghana following the principles for Corporate Responsibility on Tax?• Why tax revenues are critical for development?
Tax issues are CSR issues: Some principles?• OECD Guidelines on Taxation• It is important that enterprises contribute to the public finances of host countries by making timely payment of their tax liabilities. In particular, enterprises should comply with the tax laws and regulations in all countries in which they operate and should exert every effort to act in accordance with both the letter and spirit of those laws and regulations. This would include such measures as providing to the relevant authorities the information necessary for the correct determination of taxes to be assessed in connection with their operations and conforming transfer pricing practices to the arm‘s length principle.• Ghana Chamber of Mines• The principles that will guide corporate decision-making which the members of the Chamber will not compromise whilst achieving the mission and pursuing the vision of the Chamber are: Honesty, Transparency, Good Governance, Good Corporate Citizenship, Commitment and Unity.
Are tax issues CSR issues?• NEPAD: APRM Report, June, 2005 “Good corporate governance provides a level of disclosure and transparency regarding the conduct of corporations and their boards of directors that enables the supervision of their accountability while ensuring that they comply with their legal obligations and remissions, are accountable to shareholders and responsible to stakeholders including employees, suppliers, creditors, customers and communities, and act responsibly regarding the environment”• The Principles for Corporate Responsibility on Tax – Substance – Accountability – Transparency – Reporting – Structure – Power – Governance
Oil and mining companies and corporate responsibility on Taxes?• Are mining companies paying fair taxes? ‘’In matters of mining taxation, governments rarely believe that companies pay too much tax; companies rarely believe that they pay too little tax; and citizens rarely believe that they actually see tangible benefits from the taxes that are paid’’. (Otto et al., 2006: xi)
Corporate Taxes in Ghana: Are companies paying too much taxes? IRS/GRA Collections (US$ mil) 366 225 159 123 2007 2008 2009 2010 Source: Ghana Revenue Authority; Domestic Tax Revenue Division
Mining sector Tax payments in Ghana: Are companies paying too much taxes? Mining Sector Tax Contribution 4000 3500 3000 US$ mil 2500 2000 1500 1000 500 0 2009 2010 Revenue 2,842.80 3,620.80 Tax 225 336 Total investments from 2000 to 2010 stood at $6.2 billion. However, by 2006, about $3.5 billion had already been invested. Therefore, even with capital allowance most of the earlyinvestments should have been producing significant corporate taxes now especially at the time gold prices have also been increasing
Royalties in Ghana: an un-captured revenue potential• Until 2010, royalty of between 3% - 6% was charged on mining companies operating profit. However, no company has paid more than 3%, even at times of high revenues (GHEITI, 2007).• Between 1990 and 2007, the country lost revenue of between US$387.74 and US$1163.21 from the mining sector from non- optimisation of royalty receipts (Akabza & Ayamdoo, 2009).• Annual revenue loss from royalty from 2005 was more that 50% of total annual debt services payment of the country, while annual revenue lost from royalty alone far exceeded the annual HIPC relieves for the period (Ibid).• From 2002 to 2007, total royalty revenue losses represented more than 10% of the total national debt (Ibid).
Other Taxes: Lost potential• Capital gains Tax – Except the transaction between Newmont Ghana Limited and Normandy Plc, many mining companies that changed hands in last decade did not pay capital gains tax (Boas and Associates, 2007).• Windfall tax – In Ghana, the Mining and Minerals Act abolished windfall taxes – Between 2002 and 2008, mining companies made huge profits, above the average threshold of 25%, typically required for the application of the tax with some companies recording annual net return on investment of more than 35% (PWC, 2007)
A Wave in Mineral Tax Reforms • Royalties on metals increased from 3% to 5%. • Royalties on rough diamonds and gemstones increased from 5% to 7%.Tanzania • Royalties for polished stones raised from zero to 3%. • Mining companies should be charged a fuel tax • Suspension of stability agreements that waved taxesZambia • Increased royalties (from 0.6% to 3%) • Increased corporate tax from 25% to 30% • Windfall tax (suspended??)
A Wave in Mineral Tax Reforms • To impose 50% windfall taxSouth Africa • 50% capital gains tax on sale of prospecting rights • Royalty from 3%-6% to 5% • Corporate tax from 25% to 35% Ghana • Windfall tax of 10% • Review of Stability Agreements with Anglogold and Newmont
The Response of Mining Companies• ‘The rise of resource nationalism’’ – Economist – February 11, 2012• ‘’The most worrying thing to the 30 biggest global miners in 2011’’ – Ernst & Young, 2012.• Where is the corporate responsibility? – In Ghana, Anglogold has openly opposed the review of its stability agreement, threatening a potential dip in its investments – If Ghana implements these reforms, she will receive about $150 million in 2012• BUT are these criticisms fair?
Ghana’s lost Oil Taxes in 2011 • Government projected to collect aboutRevenue Actual ForecastStream (GH¢ mil) (GH¢ mil) $320 mil in corporate taxes • The Oil companies did not pay because of carry-forward losses, allowed underTotal Oil 666.2 1,250.0 the Petroleum Income Tax lawRevenue • Curious!! Where is the corporateo/w 184.4 201.25 responsibility?Royalties – Production strategy of companieso/w Carried 481.8 445.77 (2010)andParticipatin – Defective flow meters for almost ag Interest yearo/w NIL 603.76 – No verification of calibrations onCorporate production metersTaxes – Electronic seals not allowed by Tullow
Are Oil and Mining Companies in Ghana following the principles for Corporate Responsibility on Tax?• Accountability: Companies Transparency: Companies have neither have exploited weaknesses been transparent in their tax policy in the tax frameworks to nor in the taxes they pay, especially pay less taxes. the oil companies.• The royalty of 3-6% based on operating profit ensured • Power: Mining companies particularly that not any company paid Newmont had superior concessions in more than 3%. is its investment agreement including a negotiated royalty at the minimum• The amendment to royalty 3% and 3.6% in forest reserves. and recent tax increases • Similarly, oil companies got supper- are not being implemented attractive terms (low tax rates, high because of company profit oil, no cost recovery limits) resistance using Stability because of Ghana’s pre-production agreements. status.
Large fiscal deficits Tax revenues from Oil and Mining companies are critical for Large development infrastructure finance deficitFailing WideningMDGs Dwindling Debt burden ODA
Large fiscal deficits The Twin Deficits (% of GDP) 35 30 25 20 15 % of GDP 10 5 0 2005 2006 2007 2008 -5 -10 -15 -20 Year Total Revenue Overall Fiscal BalanceSource: Ministry of Finance, Ghana, IMF and World Bank
Infrastructure financing Needs Ghana Infrastructure Finance deficit 1.8 1.6 1.4Amount (US$ Billion) 1.2 1 0.8 0.6 0.4 0.2 0 ICT POWER TRANSPORT WATER TOTAL ICT POWER TRANSPORT WATER TOTAL Source: Africa Infrastructure Country Diagnostic, 2010.
Widening Debt burden Debt Profile (% of GDP) 70 60Debts (% of GDP) 50 40 30 20 10 0 2006 2007 2008 2009 2010 Domestic Debt External Debt Total Public Debt Source: Ministry of Finance and Economic Planning Ghana
Dwindling Aid inflows ODA trends to Ghana (%GDP) MDBS Contribution (% of total aid) 15.8 33.02 34.62 12.6910.67 10.7 26.42 25.73 9.24 21.26 20.12 7.67 2002 2003 2004 2005 2006 2007 2006 2007 2008 2009 2010 2011Source: World Development Indicators Source: Ministry of Finance and Economic (2009) Planning
Failing the MDGsGOAL BASE % RECENT %MDG1a. Poverty headcount ratio, national poverty line(%of population) 1992 51.7 2006 28.5MDG2. Primary non-completion rate, total (% ofrelevant age group) 1991 38.8 2008 15MDG3. Ratio of girls to boys in primary and secondaryeducation (%) 1991 78.5 2007 95.2MDG4. Mortality rate, under - 5 (per 1,000) 1990 119.7 2008 80MDG5. Births not attended by skilled health staff (% oftotal) 1988 59.8 2008 43MDG7a. Improved water source (% of populationwithout access) 1990 44 2006 26