Ring fencing is a proposed government policy that requires mining companies to match expenses from one mining area to revenue from the same mining area without defining a “mining area” for the purpose of taxation for the industry.
The policy will prevent mining companies from offsetting costs in one project area against revenues from another for the purpose of tax.
Last year, the government enacted the Internal Revenue (Amendment) Act 2012 (Act 839), which introduced a provision requiring mining companies to match expenses from one mining area to revenue from the same mining area. The purpose was to safeguard taxes on profitable mines and optimise state revenues.
But mining operators have kicked against the policy and said ring fencing will aggravate the difficulty of attracting equity capital, both local and offshore into the mining sector.
At a forum in Accra to consider policy alternatives that would benefit the government and mining operators, stakeholders cautioned the government not to push the policy through as it could have a harmful impact on the industry’s viability.
Lead discussant, Mr Saban Parimah, said ring fencing aggravates the difficulty of attracting equity capital from local and offshore sources into the sector.
“With the company as a single tax-paying entity, ring fencing is a severe disincentive to future investment in mining, especially in marginal ore bodies”.
He said mining companies typically mine from one or more pits, from either the same mining area or from different mining areas or a combination of open pits and underground operations.
Mined material from different pits or different mining areas are mixed (blended) and treated in order to achieve certain efficiency in the output.
Explaining the conflict between companies’ mode of operations and ring-fencing, Mr Parimah said a mining area may overlap more than one lease area, with different pits or leases operated together as single business units or mines.
The forum, which was organised by the Ghana Chamber of Mines to consider options, was attended by senior managers of mining multinationals, officials of the Minerals Commission and the Ghana Revenue Authority (GRA), as well as tax experts from audit firm, PricewaterhouseCoopers (PwC).
Mr Parimah, who is also a Tax Manager at AngloGold Ashanti Ghana Limited, said mining staff are allocated to the area where there is the need and capacity and according to the mine plan of the company.
By Suleiman Mustapha/Graphic Business/Ghana