Wednesday, November 16, 2011

Ghana to peg oil corporate tax at 35% in spite of increases globally

BY EDMUND SMITH-ASANTE

Mr. Mohammed Amin Adam

Ghana is set to fix its oil corporate tax, which is a tax on profits made by businesses, at 35% as it amends the Internal Revenue Act, despite revision of the tax upwards by many countries globally, it has been learnt.
The country currently does not have a fixed corporate tax for the burgeoning oil sector and is now set to do that in an amendment to Ghana’s Internal Revenue Act, hence the agreement by both Majority and Minority sides of Parliament to settle at 35%.
But this will not auger well for Ghana’s fiscal fortunes, says Mohammed Amin Adam, Coordinator, Extractives Programme, Ibis Ghana, who contends that Parliament is oblivious of what it bodes for the country’s finances.
In an exclusive interview after a round table meeting on the potential challenges facing recent oil and gas policy legislations in Accra Friday, organised by the Civil Society Platform on Oil and Gas in Ghana, he said “The issue of corporate tax is an issue Ghana should look into generally, because once the capital cost is recovered, what can guarantee a maximum revenue take from Ghana’s oil and gas sector is the corporate tax.”
According to Mohammed Amin Adam, although “before the cost recovery, the corporate tax may not be much because the companies may not be declaring profit, after five years, when the capital allowance would have been exceeded, the government and country can generate substantial portion of the oil revenue from corporate tax.”
He lamented that his argument notwithstanding,  “Parliament is about amending sections of the Internal Revenue Act, which at the moment doesn’t make provision for corporate tax in the petroleum sector.”
The Ibis Coordinator explained that currently the petroleum taxes are catered for in the petroleum income tax law, PNDC Law 188, which puts a maximum of 50% corporate tax that can be charged on the profits of oil companies.
He expressed his befuddlement that “what Parliament is going to do is to peg it at 35% of profits in the Internal Revenue Act, and I don’t understand why.”
Mohammed Adam intimated parliament’s assertion that though corporate tax generally is 25% and 50% maximum for the oil sector, Ghana has negotiated 35% in all the contracts, which has informed the decision to peg it at 35%.
Communicating his exasperation, he said “I think this is an injustice to Ghana because you charge lower taxes when you haven’t discovered oil because the risk profile is very high, but when you have discovered oil in the quantities that we have discovered in Ghana, the risk has gone down significantly, we should be seen to be graduating over the attractive terms that we gave when we hadn’t found oil.”
He thus questioned why Ghana will not go for the maximum 50% or even review the law to take more corporate taxes. “If the 35% we have negotiated has been the product of poor negotiation, now we want to legalise it! I don’t think this is good for the country,” he stressed.
Mohammed Amin Adam listed countries that have struck better deals as in corporate taxes as Equatorial Guinea, which has recently pegged its tax at 50% after going for 40% initially, Chad- 50% and Nigeria currently charging 50% but going for 80%.
To counteract the bad move Ghana is about to take, he urged Parliament to give the issue serious thought, discuss it dispassionately and seek the interest of the nation.
He also admonished civil society organisations to speak up against the bad move so the right thing would be done for Ghana.  
Further touching on local content regulations, the Ibis Extractives Programme Coordinator stated that until the exploration and production bill, which will provide broad provisions but is yet to go to Parliament, is passed into law that would not be plausible.
Mohammed Adam stated that although Ghana was bound to make mistakes in its nascent oil industry, the country had gotten it right with respect to legislations to govern the sector.
“We have moved faster than other countries have moved when they discovered oil, so on that positive note, I am confident that the problems and challenges we are going to face will also be addressed in the same manner as we have began passing good laws, at least for the revenue management and for the regulation of the sector,” he expressed optimism.
He further challenged that Ghana should be able to correct its mistakes in the next three to five years, so the country can become a model of oil exploitation and management for other countries.

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