Senior Lecturer at the University of Ghana’s (UG) Law School, Dr Abdallah Ali-Nakyea, has called on Government to have a re-look at revenue generated from the extractive sector in the form of corporate taxes and royalties imposed on extractive firms.
Speaking to norvanreports on the sidelines of the 8th Pan African Conference on Illicit Financial Flows and Taxation themed; The Ghana We Want Post COVID-19: Optimizing Domestic Revenue Mobilization (DRM) from the Extractive Sector for Ghana’s Transformation, Dr Ali-Nakyea noted that, a balance between corporate taxes and royalties from operations of firms in the extractive sector will help boost domestic revenue mobilization efforts by Government.
Noting that, the 35 per cent corporate tax imposed on extractive firms as being optimal, Dr Ali-Nakyea explained that an increase in the already 5 per cent royalties on minerals mined by extractive firms will not be the best as Government cannot have both revenue streams – corporate tax and royalties – being high, and therefore advocated for a balance between the two.
“The debate has been to balance corpoarate tax and royalties because Government can’t have both being high and the idea is that let there should be simulations of the the two, an increase in corporate tax and a reduction in royalties or vice versa, to know how its going to influence and maximize revenue generation efforts from the sector,” he asserted.
Dr Ali-Nakyea, however, opined that royalties compared to corporate taxes from extractive firms provided Government certainty in revenue generation and therefore advised Government to concentrate more on royalties rather than corporate tax.
“There are no deductions by extractive firms when it comes to payments of royalties, because royalties is simply the quantity of the minerals mined multiplied by the price of the mineral and whatever be the value, Government takes its 5 per cent out of it. So whether the company makes profit at the end of the day or not it doesn’t matter, so there is that guarantee of having revenue. But with income tax, the company has to prepare its financial statements and do some cost deductions and all that before declaring profit and at the end of it all, it could be that the company might have run at a loss, and so then Government doesn’t get its 35 per cent corporate tax,” he stated.
“So for instance, Zambia for a long time now takes only royalties and not corporate taxes,” he added.
The 8th Pan African Conference on Illicit Financial Flows and Taxation Conference organized by the Ghana Integrity Initiative (GII) and the Integrated Social Development Centre (ISODEC) with funding support from Diakonia and Tax Justice Network Africa, sought to discuss and find ways of strengthening domestic revenue mobilization efforts and tackling Illicit Financial Flows (IFFs) from the nation’s extractive sector.
Ghana, according to the Africa Centre for Energy Policy (ACEP), between 2002 and 2011, lost on average $1.4 billion annually through Illicit Financial Flows. Ghana seems to be losing the fight against IFFs as the figure over the years has increased to $2.5 billion annually.
