Upstream Petroleum Chamber opposes proposed Growth and Sustainability Levy; says could damage investment in oil sector
The Ghanaian government’s proposal to introduce a new Growth and Sustainability Levy has been met with staunch opposition from the country’s Upstream Petroleum Chamber. The levy, which is currently awaiting approval from Parliament, would impose a 1% tax on gross production for oil and gas companies and extractive companies, as well as a 5% tax on profit before tax for these businesses.
In response, the Chamber has warned that the proposed tax could have severe consequences for investment in the country’s oil and gas sector, triggering litigation and disinvestment by international oil companies. Joe Mensah, Senior Vice President of Kosmos Energy Ghana and Chairman of the Upstream Chamber, has warned that the new levy “will damage investments” and represents an increase in royalty, which could be detrimental to the industry.
The Chamber has cited the ongoing challenges faced by the industry, including the COVID-19 pandemic, as reasons why this tax is ill-timed and could lead to the collapse of indigenous oil service companies. The Chamber has also accused the government of implementing a series of creeping taxes, which are affecting the economic balance of petroleum agreements, including the COVID-19 Recovery Levy, Ghana Education Trust Fund Levy, National Insurance Levy, and the 1% local content fund levy.
According to the Upstream Petroleum Chamber, the lack of stability and predictability in tax policy means that businesses cannot be sure what their investment returns will be, which could disincentivize new investment in the industry. The Chamber has urged the government to reconsider the levy and instead focus on encouraging exploration and development of hydrocarbon reserves by attracting foreign capital.
This tax also ignores the importance of preserving contract sanctity to promote new investment, the Chamber said, adding that the unpredictability of fiscal terms could disincentivize new oil and gas investment at a time when financial institutions are curtailing investment in fossil fuels. The Upstream Petroleum Chamber has called on the government to pursue a path of reserves and revenue growth through the expedited award of exploration blocks to prospective investors.
As a result, the government’s decision to introduce this new levy is highly controversial and has raised concerns among industry stakeholders. If implemented, this tax could pose a significant challenge for Ghana’s oil and gas industry, which is already facing considerable headwinds. At a time when the industry needs stability and support, the introduction of new taxes and levies could further destabilize the market and deter investment.
