Ghana's 2010 Budget Doubles Mineral Royalties

by Lorys Charalambous, Tax-News.com, Cyprus

20 November 2009

A review of the country’s mining sector fiscal regime was among the measures introduced by the country's Minister of Finance and Economic Planning, Kwabena Duffuor, in his 2010 budget, including a proposed doubling of minimum mineral royalties to 6%.

The budget for the year to end-December 2010 was depicted as a “comprehensive set of policies to support government’s medium-term growth strategy in a manner that will be sustainable,” and promised to maintain the fiscal discipline that, it was said, had been achieved in 2009.

As a result, Duffuor said, of a rigorous management of expenditure in the face of shortfalls in revenue and grants, the overall 2009 budget deficit is estimated at GHS2.2bn (USD1.53bn), equivalent to 10.2% of GDP and in comparison with the 15% seen in 2008. Total revenue and grants in 2009 are projected at GHS7.2bn, indicating a fall of 3.5% below the original budget estimate. The expected drop in domestic revenue is due mainly to the underperformance of VAT and petroleum taxes.

In 2010, budgeted tax revenue is forecast to increase by 20.2% over the outturn in 2009 to GHS6.1bn, or 23.4% of the projected GDP, and several measures were announced towards achieving that target.

“Current permits and parliamentary exemption regimes have tended to erode the tax base and undermine the effective progressivity, fairness and efficiency of the tax system,” Duffuor said. “In the process, significant revenues have been lost to the government. Beginning in fiscal year 2010, the exemption regime will be reviewed and streamlined to ensure fairness and also avoid revenue losses.”

Further revenue measures to be introduced in the 2010 fiscal year therefore include a reduction in import exemptions by at least 20% from their 2009 level and a shift from specific to ad-valorem excise taxes on selected commodities. The effectiveness of the VAT regime will be strengthened; tax compliance will be enhanced, particularly by the self-employed; and rates, fees and user charges that do not reflect the cost of public goods and services rendered will be increased.

There will be an increase in the minimum mineral royalties to 6%, from the current 3% minimum. In addition, Duffuor announced that “the government will engage all mining companies to address the issue of dividend payment, exemptions and the whole mining sector fiscal regime.”

“Reform of the tax system will continue in the medium term with the view to plugging loopholes, reducing tax evasion, and fairly taxing rents from natural resources to make the tax system more efficient and less dependent on indirect taxes,” he continued. “New taxes and levies will be introduced to establish the right prices for natural and environmental capital, thus generating more government revenue while providing the right incentives for reducing environmental degradation.”

“Increased emphasis would be placed on the evaluation of tax systems, particularly in documenting tax evasion and efforts to reduce them, and in increasing the base to ensure fiscal sustainability,” he added.

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