Ghana: More revenue through fiscal reforms

Extractive revenue reaches record high of USD 1.3 billion.

Ghana’s EITI Report for 2014, which was published merely a year after the end of the reporting period, shows that revenue reached a record high of USD 1.3 billion, with about 75% of extractive sector revenue coming from oil and gas. Corporate income tax generated USD 285 million (29% of total).

While revenues from oil become larger, payments from mining are decreasing and reached a new low of USD 325 million in 2014, down from USD 424 million in 2013.

Capital gains tax introduced

Past Ghana EITI Reports have identified how the tax system can be improved to capture more revenue from extractives. In 2011, one of the international oil companies operating in Ghana acquired one of the partners in the Jubilee oil field.The 2011-12  Report found that there was no capital gains tax charged as part of the transaction, although the transaction was liable to tax.

Following up on this finding, Ghana EITI and the government made changes to the fiscal regime to make sure that such capital gains  from the oil sector would be taxed in the future. Ghana’s EITI Report findings have also led to other reforms in the fiscal regime, such as establishing a fixed royalty rate and higher ground rents, to increase revenue from the sector. The latest report provides details on the changes made in the legal and fiscal frameworks related to the extractive industries, which can help stakeholders understand the rules and laws regulating the sector.

Getting down to the local level

Ghana EITI is working to improve the impact of mining royalties at the local level by disclosing what local governments receive from mining. The latest report shows that ground rents and a part of mineral royalties are either paid directly to the District Assemblies or to the Office of the Administrator of Stool Lands (OASL), which then transfers that revenue to local governments. This is an important aspect of EITI reporting for mining communities in Ghana, as around 40% of the budget of local governments comes from mining.

The report provides detailed information on ground rent and mineral royalty payments made to local governments, and notes that there is still USD 12 million worth of outstanding payments to be made.

Disclosing local content

Ensuring that the extractive sector provides benefits for local employment has been an important issue in Ghana, and Ghana EITI has been involved in debates on whether companies comply with local content requirements.  Ghana’s petroleum regulations on local content mandate extractive companies to meet certain human resource and supply chain requirements.

The report shows that these requirements are met, with 80% of the jobs generated by the sector being held by Ghanaian nationals, and 78% of total mining procurement going to local sources of goods and services.

Opening license bidding processes

Ghana’s past EITI Reports have provided recommendations on reforming the licensing regime. The current process for allocating mining licenses is a first-come-first-served system, while Ghana’s reports have recommended introducing an open bidding system. The new report notes that the government is planning to introduce tender submissions alongside the existing system for mineral rich areas, and reiterates that open bidding should be introduced.

 

Read the Ghana EITI 2014 Oil and Gas Report and the 2014 Mining Report

For more information about extractive transparency in Ghana, see Ghana’s EITI website or visit the country page on eiti.org.