Tax expert questions base for windfall tax

An accounting professional with speciality in taxation says while the tax reforms announced in the 2012 budget will bring some relief to income tax payers, it can reduce the profitability of some sectors of the economy, especially mining.

Mr Abeiku Gyan-Quansah, Manager, Tax Services at accounting firm PwC, told the Daily Graphic that tax reforms for the stock exchange, raising the income tax bands and the introduction of a new accounting system for administering tax refunds were healthy developments.

However, Mr Gyan-Quansah was skeptical that although the National Stabilisation Levy would be abolished, other tax measures for the mining sector could erode their profitability depending on what constituted the base for determining the taxes.

The tax expert made it clear that the accounting firm was yet to fully appraise the entire budget to enable it to make deeper comments in due course.

Last Wednesday, the Minister of Finance and Economic Planning, Dr Kwabena Duffuor, presented the 2012 Budget and Economic Statement of the government to Parliament, during which he announced a variety of tax measures aimed at roping in more revenue and broadening the tax net.

It also sought to enable Ghanaians benefit from the windfalls that mining companies have been enjoying in recent years due to increases in the price of gold on the world market.

Beginning next year, the finance minister announced, the corporate tax rate for mining companies would be increased from the current 25 per cent to 35 per cent, while a windfall profit tax of 10 per cent will be paid by all mining concerns. The rate of capital allowance was also slashed from 80 per cent to 20 per cent for five years for mining.

Capital allowance include certain types of huge expenses the mining companies make in their operations such as purchases of mining equipment, which are allowed to be deducted from their gross profit before tax is determined.

Mr Gyan-Quansah told the Daily Graphic that the reduction in the capital allowance rate would increase the taxable incomes of the mining companies and could deny them the requisite profit for all the risk they took in mining.

He said with the increase in their tax rate and reduction in the capital allowance, mining companies would have more taxes applied to them, although contrary to stabilisation clauses in the Mining Act 2006, which protected them from suffering adversely from increases in taxes in the jurisdiction.

“Increases in prices will increase their revenues much as it will lead to an increase in the five per cent royalties they pay to the state. But the current arrangement has the potential of affecting the investments of the mining companies,” the PwC tax services manager stated.

He also wondered what would be the base for calculating the windfall tax, whether it was the additional unit of profit or the revenue.

Mr Gyan-Quansah was, however, happy about the renegotiation committee to be set up as that would offer the mining companies the opportunity to make inputs.

Of interest to many companies is the announcement of improvements in the administration of the revenue refunds system under VAT and duty drawbacks, which the industry has for a long time been complaining about.

The GRA which administers the refunds has been mandated to adopt an accounting system to allow taxpayers to offset such refunds against other tax obligations.

“The proposed reform in VAT Refunds is a step in the right direction after many years of calling for this setting of method. It will eliminate the system where the refunds become due only after an audit- a process which takes a long time and locks up the working capital of companies,” Mr Gyan-Quansah said.

He also lauded other tax reforms for trading activities on the stock exchange, saying a holiday in capital gains tax for instance could help move Over the Counter (OTC) trade in shares onto the stock exchange.

The government is seeking to increase local revenue mobilisation, which currently, stands at 13.1 per cent of the total production of goods and services in the country also known as Gross Domestic Product (GDP), a reduction from the 22 per cent to GDP before the economy was rebased last year.

The average in the sub-Saharan Africa region is 15 per cent. The tax revenue-GDP ratio outturn for 2011 is estimated at 16.5 per cent.

Source: Daily Graphic