Tracking extractives, collecting double the mining revenues

Using data disclosed in reports published through the Extractive Industries Transparency Initiative (EITI), citizens were able to assess whether or not mining deals between companies and the government were fair.

Ghana is the second largest gold producer in Africa and the eighth largest globally. In 2013, the mining sector accounted for 10% of the country’s GDP, and oil and mining together accounted for 66% of exports. Despite this wealth, however, the country has struggled to combat high debt and to create sustained economic growth that improves the lives of all citizens. One in four Ghanaians lives in poverty despite the country’s significant natural resources.

Ghana joined the EITI in 2007 and became compliant in 2010. Its early EITI reports revealed very low levels of government revenues from the mining sector, ranging from US $27 million in 2004 to $91 million in 2008. Consequently, Ghanaian civil society began advocating for higher taxation in the mining sector and for the increased use of mining revenues to finance social and infrastructural programs.

As a result of these efforts, major changes were introduced to the country’s mining tax law in 2010 and 2011. The mineral royalty rate for gold was changed from a range of 3% to 6% to a fixed rate of 5%. The corporate income tax rate for mining companies was raised from 25% to 35%. A windfall profit tax was introduced. Surface rental payments, which had been frozen for decades, were increased 18-fold. Consequently, the fiscal deficit fell significantly and the growth of the country’s debt stock slowed.

The Ghanaian government’s revenues from mining more than doubled between 2010 and 2011, from $210 million to $500 million. The increase was partly a consequence of higher mineral prices, but also reflected a 75% increase in corporate taxes and higher royalties paid by companies.

Another significant change was the new Petroleum Revenue Management Act (2011), which incorporated numerous inputs from civil society. The law allows the government to invest between 50% and 75% of oil revenues in social and infrastructural programs. This had an immediate impact, with higher amounts earmarked for education, healthcare, agriculture, rural water, electrification and roads in the 2012 budget.

Key Lessons:

  • Information about the actual level of fiscal contribution of mining companies can catalyse a public debate about the appropriate taxation of natural resources.
  • Changes in taxation of mining companies may lead to quick fiscal gains in a transparent environment.

Website: http://www.pwypghana.com

Photo credit: The EITI