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RECENT TRENDS

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Title: Slide 1 Author: BenAryee Last modified by: BenAryee Created Date: 10/27/2014 4:22:30 PM Document presentation format: On-screen Show (4:3) Other titles – PowerPoint PPT presentation

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Title: RECENT TRENDS


1
RECENT TRENDS DEVELOPMENTS IN GHANAS MINING
FISCAL REGIME
  • B.N.A. Aryee
  • Advisor (Mining)
  • Ministry of Lands Natural Resources, Ghana

2
PRESENTATION OUTLINE
  • Background Introduction
  • Rationale for Recent Mining Fiscal Regime Reform
  • Recent Trends in Ghanas Mining Fiscal Regime
  • Other Developments
  • Guidance Questions Answers

3
BACKGROUND INTRODUCTION
  • Ghana is a significant gold producer in Africa
    (second after South Africa) and globally, being
    the 9th largest producer in the world.
  • In 2013, Ghana produced about 4.3 million ounces
    of gold, only a marginal decline from the 2012
    highest ever production in the history of the
    country,

4
MINING SECTOR OVERVIEW
  • Investment inflows for mining from 1983 to 2013
    was about US13.7 billion
  • Gold production for 2013 was 4.3 million ounces.

5
OVERVIEW MINERAL PRODUCTION
6
OVERVIEW MERCHANDISE EXPORTS
7
MINING SECTOR OVERVIEW
  • The significant investment over the years and
    consequently mineral outputs led to an increased
    sector contribution to the economy of
  • 28 of Government revenue as collected by the
    Ghana Revenue Authority in 2012
  • Export revenues from the mineral sector amounted
    to US5.1 billion in 2013 accounted for
  • 42 of total merchandise export in 2012
  • Employed 28,000 for large scale and estimated
    over 1 million people for small scale mining.

8
RATIONALE FOR THE RECENT REVIEW OF THE FISCAL
REGIME 1
  • Speaking at the recent World Economic Forum in
    Davos, Switzerland on challenges in the mining
    sector, President John Mahama explained that
    Ghana is having
  • http//business.peacefmonline.com/pages/news/20140
    1/186799.php

issues with the big mining companies that have
stability agreements that locked in the level of
royalties and taxes for us. So when gold prices
rose up to a record high we could not earn more.
9
RATIONALE FOR THE RECENT REVIEW OF THE FISCAL
REGIME 2
  • During the recent prices of gold, reached
    their peak levels ever. Yet the country did not
    benefit at all from the price hikes, particularly
    from gold,
  • economic and social benefits provided by the
    mining sector did not match governments
    expectations, hence its decision to review the
    industrys taxes -
  • the issue with mining was fair and transparent
    sharing of benefits and windfall gains from the
    exploitation of the countrys precious and
    irreplaceable natural resources.
  • Thus, government is taking a bold step to
    critically review the fiscal regimes and mining
    agreements, with the view of ensuring that the
    country benefited adequately and fairly from the
    gains in the mining sector.
  • - Dr Edward Larbi-Siaw, Tax Policy Advisor of the
    Ministry of Finance (May 2013)

10
RECENT TRENDS IN GHANAS FISCAL REGIME
ITEM SMCD 5, 1975 PNDCL 153, 1986 AMENDMENTS TO PNDCL 153 ACT 703, 2006 AMENDMENTS TO ACT 703

Gold export levy 6
Mineral duty 5-10 Repealed
Import duty 5-35 Repealed
Foreign exchange tax 33-75 Repealed
Import license tax / import levy 10 Repealed
11
RECENT TRENDS IN GHANAS FISCAL REGIME
ITEM SMCD 5, 1975 PNDCL 153, 1986 AMENDMENTS TO PNDCL 153 ACT 703, 2006 AMENDMENTS TO ACT 703
Pre-prdn Cost Capitalization Capital Allowances 20 initial then 15 DB 75 initial then 50 DB 75 initial then 50 DB 20 SL
Investment Allowance 5 5 5
Loss CF Up to 5 Yrs Up to 5 Yrs
Forex Retention 25-80 Offshore 25-80 -20 Onshore
Import Duties Exempt () Exempt ()
Royalty 6 6-12 3-6 5 Act 794
Corp Inc Tax 50-55 45 35 25 35 mining
APT /WFPT 25 on 35 IRR 10 proposed)
plant, machinery and equipment imported
exclusively and specifically for Mining
12
RECENT TRENDS IN GHANAS FISCAL REGIME
ITEM SMCD 5, 1975 PNDCL 153, 1986 AMENDMENTS TO PNDCL 153 ACT 703, 2006 AMENDMENTS TO ACT 703
Withholding Tax 10 10 15
Capital Gains Tax 10 10 15
National Reconstruction Levy 2 of pretax profits(2001)
Equity Participation 10 free carried Interest option of 20 shares at mkt price 10 free carried interest
Stabilization Deed of Warranty on Ltd Fiscal Terms broad Stability Devt Agree-ments
Since 2012, mining companies operating in Ghana
have been subject to the following taxes
Corporate tax 35 percent Capital gains tax
15 percent Withholding tax 15 percent
Capital allowances 20 percent for five years In
addition, the mining companies are required to
pay a royalty of 5 percent of their total
revenues.
13
Revised Fiscal Provisions
  • During 2010 - 2012
  • royalty rate increased from a sliding 3-6 per
    cent to a fixed 5 per cent rate
  • corporate tax rate was increased from 25 to 35
    per cent
  • Capital gains Withholding taxes 15, up from
    10
  • 80, then 50 Declining Balance Capital
    Allowance replaced by uniform 20 for 5 years
    regime and
  • windfall profit tax at a rate of 10 percent for
    all mining companies was proposed, but shelved

14
Other Developments
  • Improving Arms-length Dealings Framework
    Transfer Pricing Regulations L.I. 2188, 2012
  • Renegotiation of Stability Agreements, for
    simplification, clarity, and equity
  • Amendment of Minerals and Mining Act, Act 703 of
    2006, under way ( further Amendments being
    considered)
  • Formalization of Community Interests MDF
    legislation almost ready for Parliament
  • Improved Stakeholder Engagement, for transparency
    and good governance, e.g. EITI
  • Active Involvement in REC (ECOWAS) policy
    legislation harmonization drives also
    Continental (AU/UNECA) Initiatives
  • Ghanas Application to AMDC to support its
    adoption of CMV process.

15
SOME GUIDANCE QUESTIONS ANSWERS
16
Which elements of the reform package attracted
the strongest reactions from the mining companies
why?
  • Mining firms blackmail Ghana over windfall profit
    tax
  • President John Mahama told the World Economic
    Forum in Davos that his government has not been
    able to implement the policy due to threats from
    the mining companies.
  • They threatened to lay off workers if we
    implemented the windfall tax and because we
    needed the jobs and you dont want workers laid
    off you are coerced to go along. So these are
    major issues we have, They will not allow us
    to implement a windfall tax in our country,
    President Mahama said.
  • BAD TIMING GOLD PRICE DIPPED SOON AFTER
    PROPOSAL.
  • http//sankofaonline.com/mining-firms-blackmail-gh
    ana-over-windfall-tax-4700-illigal-miners-deported
    -mahama/

17
Which elements of the fiscal reforms proved most
difficult to implement and why?
  • Ring-fencing provision
  • Act 839 (2012) had a provision requiring mining
    companies to match expenses from one Mining Area
    to revenue from the same mining area but Mining
    Area as defined by the Mineral and Mining Act,
    2006 Act 703 was not for tax purposes impeded
    implementation.
  • INADEQUATE CONSULTATION AMONGST AGENCIES

18
Would you regard the fiscal reform exercise as
having met its objectives?
Yes, as shown below, Royalty collections rose
dramatically between 2010 2012 due to the
increase in rate, but impact was dampened in 2013
due to the fall in gold prices. Corporate taxes
also improved due to the application of new tax
rates and capital allowance.
YEAR MINERAL ROYALTY GHC CORPORATE TAX GHC
2013 364,673,038 518,545,259
2012 359,392,853 893,773,828
2011 222,027,706 649,902,536
2010 144,697,345 241,578,780
19
What are the main lessons that you draw from
Ghanas mining fiscal reforms? 
  • To achieve and sustain the gains
  • Need for adequate stakeholder consultations to
    have the desired impact
  • Government should be more proactive and react
    quickly to the changes in the mining industry,
    e.g. Government would have benefited more from
    gold price hikes if reforms were undertaken
    earlier, say btn 2008-09
  • Fiscal reforms should also aim at maximising
    revenue without necessarily increasing taxes eg.
    By facilitating (i)Broadening tax base
    (ii)Diversifying mineral resource base
    (iii)Enhanced value addition, beneficiation and
    local content linkages in general.
  • Need to fashion suitable and sustainable tax
    system to meet the needs of small scale miners.

20
THANK YOUFOR YOUR ATTENTION
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