Tax waivers in extractive sector eroding local gains

BY: Ama Amankwah Baafi
Prof. Raymond Atuguba
Prof. Raymond Atuguba

A constitutional and petroleum law expert, Prof. Raymond Atuguba, has said that the issue of tax incentives and waivers to multinational companies, especially in the extractive sector, needs to be substantially changed if Ghana is serious about promoting long- term economic development.

He noted that company tax payments were minimal due to low tax rates, while governments often provided companies with generous incentives such as corporation tax holidays.

During a presentation on the Legal and Political Economy analysis of the Ghana-Exxonmobil Petroleum Agreement to some members of the Institute of Financial and Economic Journalists IFEJ) at Akosombo, he said that many African governments depended on mineral resources for revenues, yet the extent of foreign ownership means that most wealth was being extracted along with the minerals.

He indicated that a recent research on the financial inflows and outflows to and from sub-Saharan Africa found that US$134billion flows into the continent each year, mainly in the form of loans, foreign investment and aid.

However, US$192billion is taken out, mainly in profits made by foreign companies and tax dodging.

“The result is that Africa suffers a net loss of US$58billion a year. In only a minority of mining operations do African governments have a shareholding.

The result is that Africa, the world’s poorest continent, is being further impoverished,” he said.

He added that all eyes seem to be on Ghana because she has the resources and it was so easy to exploit them and so as the country discuss agreements it was important to factor in the impact of tax incentives.

A Senior Advisor, Extractive Resource Governance, GIZ, Mr Allan Lassey, said the practice of tax incentives had persisted in the mining sector for ages and has resulted in loss of revenue to the state.

He mentioned that even when gold prices shift to the roof, the country does not get extra revenue out of it and yet these multinational mining companies import all kinds of things and they are waived.

“But when you and I import anything for whatever reason, if we don’t pay, it is confiscated.

The oil sector is de-risked to a maximum extent so if the previous ones have been given that concession today, what excuse do we have as a nation to grant Exxonmobil import and export waiver,” he asked.

He added that issue of tax waivers was an issue that needed to be looked at thoroughly.

Sustainable projects

Prof. Atuguba cautioned that the end of hydrocarbons was so near such that it was imperative to invest in sustainable and renewable projects after extracting the natural resources.

He noted that natural resources were exhaustible with a 10-20-year life span, especially hydrocarbons, therefore, proceeds taken should be used to build things that are lasting.

“So, there is a short time frame within which to utilise these resources before world price comes down to $5 a barrel.

Very soon, people will be looking for cars they can charge and not buy petrol. Don’t blow it all when you extract or else the country can never move forward,” he stated.