Uncomfortable with new mining and mineral taxes expected to be implemented next year, sector operators have described them as too high and having the potential to impede future investments in the sector. Dr. Toni Aubynn, CEO Ghana Chamber of Mines, told B&FT: “Uncertainties must be looked at carefully. The new reforms could deter the mining companies from making further investments in the sector. “The country’s new tax moves have brought forth warnings and cautions about the impact these measures could have, such as making the nation unattractive for future mining efforts and scaring off investors.” Government in its 2012 budget statement announced that the corporate tax rate for miners is being increased from the current 25% to 35%, while a windfall profit tax of 10% will also be imposed. But indeed the reactions have so far been mixed -- with mining firms fretting over the impact the measures would have on their earnings and investments even as groups such as the Ghana Mineworkers’ Union celebrate the changes. Seth Terkper, Deputy Finance Minister, in a recent engagement with representatives of mining firms, said: “The changes in the taxes are part of a rationalisation plan. Later on, other natural resource sectors will be brought on board. So, it’s not about targetting mining companies; and they are not meant to be anti-investment. “It is the government’s intention to review its involvement and interest in the mining sector, and it has been engaging with miners on the changes it intends to bring about.” Civil society organisations are commending government for the bold move, in particular for measures to rationalise fiscal operations in the natural resource sector. Others, especially the mining community hard hit by the proposals, are unhappy and are calling on government to take a second look at them. The Ghana Aid Effectiveness Forum, an umbrella-body that brings together national networks on aid and development issues, commended government for the move -- arguing that although Ghana is a resource-rich country, the benefits from exploiting natural resources have been minimal and many communities where the resources are found are mired in abject poverty. The proposals announced by the Minister of Finance and Economic Planning, Dr Kwabena Duffuor, in the 2012 budget include -- in addition to the hikes in corporate and windfall taxes -- the reduction in capital allowance tax from 80% to 20% for a period of five years for all mining companies, as in the case in the oil and gas sector. Other mineral-rich African states that have recently raised mining taxes or royalties include the region's top copper producer Zambia, and Zimbabwe which has the second-largest known platinum reserves in the world. Notably, though, Zambia has announced it will not re-introduce the 25 percent windfall tax it abolished in 2009 as such a measure could harm mining operations and negatively effect the economy. “It would be unwise for the government to introduce a windfall tax when metal prices are unstable and are usually trending downwards,” said Zambian Finance Minister Alexander Chikwanda. Several analysts have said the wave of resource nationalism, which coincides with sky-high commodity prices, is one of the biggest political risks to the mining sector. Gold Fields Chief Executive, Nick Holland, is quoted by the Reuters news agency as saying planned projects that could bring $1billion in investment to Ghana were at risk because of looming tax changes outlined in the nation's budget. “The company is concerned about Ghana’s move to increase corporate taxes on the mining sector to 35 from 25 percent. It is a source of deep concern to us. “It isn’t sustainable for Gold Fields to be paying higher royalties than other gold producers in the country.” Holland's comments at a presentation to investors in Johannesburg, South Africa, last week Monday were the strongest to date by a mining company on the issue. Gold Fields is the world's fourth-largest gold producer and regards West Africa as key to its global growth strategy. The Ghanaian government is however insistent that the issue with mining is about fair and transparent sharing of the benefits and windfall gains from the exploitation of the country’s precious and irreplaceable natural resources. It is also aimed at attracting additional financial benefits from the mining and minerals sector. In a sign that more actions will be taken, the government has set up a National Re-Negotiation Team to critically review the fiscal regimes and mining agreements with the view to ensuring that the country “benefits adequately and fairly from the gains in the mining sector”. During the recent global financial crisis, prices of gold, cocoa and oil reached their highest levels ever on the international market. Yet the country did not benefit much in terms of government revenues from the price hikes, particularly from gold. The International Monetary Fund (IMF), believed to be an instigator of these new tax-reform measures, has stated that Ghana has not benefitted enough from rising gold prices. The IMF in a statement encouraged government to continue its efforts to strengthen tax administration. It also supported adoption of additional tax policy measures, particularly in the area of natural resources where taxation is low in comparison with peer countries. Higher prices, more money….. or not But Ghana’s private sector umbrella-body, the Private Enterprises Foundation, does not think the issue is necessarily so. PEF President, Asare Akuffo, opined that the mining corporate tax hike is in order since government and the country should benefit more from the mining sector. He however cautioned government to reconsider the proposed windfall tax on the mining companies. “Companies thrive on profit; the reality in business however is that there are periods of losses and the savings made in good times are what keeps the companies in operation,” Mr. Akuffo said, adding that the windfall tax may be a disincentive for future investments in Ghana’s mining sector. The Chamber of Mines has warned that the new tax measures need to be implemented ‘scientifically’ because high gold prices do not necessarily mean mining companies are making more money. According to the Chamber, some gold miners are currently producing at US$1,200/oz. At that rate, their gold mining costs appear to be far above the average for the continent. The average per ounce production cost in “other Africa”, which excludes South Africa, in Q1 2011 was US$647 -- resulting in a record cost/price differential of US$740/oz, according to a gold mine cost report. Government will still demand mor Ernst & Young annually analyses business risks and reported that for 2011-2012 the number-one risk for miners is resource nationalisation (number four in 2010), which involves countries attempting to get more money from their minerals. The report says resource nationalisation takes many forms, including increased royalties, taxes and mandatory participation whereby governments mandate the involvement of certain stakeholders. The mining and metals sector rebounded quickly from the global financial crisis, making it an early target to restore Treasury conditions, the report said. 2011 has marked a period when more governments are aiming at that target. A growing amount of legislation has been implemented and is being considered that attempts to extract more profits from the minerals that miners are extracting. This is a trend that Ernst & Young predicts is only likely to increase. Mining sector operators have proposed an intensive dialogue with government for possible and future negations regarding mining tax reforms. “It appears it was difficult for government to dialogue with us, the mining operators, concerning the introduction of the new mining tax. We are ready to dialogue with government to ensure that the country maximises revenue from mining rather than deterring investors,” said some mining operators. Mining revenues already substantial Total mineral revenue rose significantly from US$2.93billion in 2009 to US$3.73billion in 2010, representing an increase of 27 percent mainly on the account of the healthy price of gold, although other minerals recorded increases in prices during the period. In 2010, mining companies returned about 68 percent of the US$3.7billion mineral revenue to the country through the Bank of Ghana (BoG) and the private commercial banks. An average of 20 percent was repatriated to the country through BoG and the remaining 48 percent through private banks. This ensured that the country received considerable foreign exchange from the mining sector to support the nation’s foreign currency transactions. Last year, the industry spent US$ 865million representing about 27 percent of its total funds to procure inputs locally, including diesel and power. In addition, the mining sub-sector contributed about GH¢520million to the Ghana Revenue Authority (GRA), representing 21 percent of total GRA collections in 2010. The sector also paid GH¢242million in corporate tax to the GRA, representing 24 percent of the total company tax collected last year.