Chamber of Mines holds seminar on ring fencing
Ring fencing in the mining industry is uncommon in major mining jurisdictions of the world and even where it exists, the provisions are on the basis of operating mines, Mr Saban Parimah, Tax Manager Anglogold Ashanti, has said.
Ring fencing refers to the singling out of projects by a company into singular entities for purposes of tax computation to help prevent companies from mixing costs from one project with revenues from another.
In the mining sector, the Internal Revenue (amendment) Act, 2012 (Act 839), has been passed, to disallow the deduction of expenses exclusively incurred in one mining area against revenue derived from another mining area, probably, a developing or less liquid one, but both belonging to the same company or tax payer.
Speaking at a seminar for members of the Ghana Chamber of Mines on Ring Fencing, Mr Parimah said experience from other jurisdictions had shown that the provisions are best implemented when they are on the basis of operating mines.
Mr Parimah said an implementation of ring-fencing, based on mining area might be difficult, as mining companies may hold one or more mining leases from which they derive their current ore or future ore resources.
Besides, lease areas acquired by some mining companies have more than one designated as mining areas as defined in Act 703.
“A mining area may straddle more than one lease area; and different pits or leases are operated together as single business units or mines,” he said, adding that, the mineral ore from different pits or mining areas are processed in centralised processing or treatment plants together with other ancillary activities
Mr Parimah said the options of ‘Mining Lease As A Unit To Be Ring Fenced’ and surface and Underground operations are both not feasible as they would discourage investment in marginal ore bodies and facilitate the demise of old mines.
He said since mining companies mined material from different pits or different mining areas, they are blended and treated in order to achieve certain efficiency in the output.
“There is a single source or exit point for mining companies to recognise revenue and that is when processing is complete. Revenue can only be recognised when ore has been processed through the processing or treatment facility,” Mr Parimah said.
Mining Staff are engaged to work for a specific mine and are not engaged on a pit by pit basis or lease by lease basis. On any given day, mining staff are allocated to the area where there is the need and capacity and according to the mine plan of the company
He said the most feasible option was ring-fencing operating mine Including all operating pits, that is identifying the mine as a single tax paying entity to reflect the nature of mining operations.
This, he said, would encourage investment and exploitation of marginal ore bodies, eliminate disputes with tax authorities, prolong the life of relatively old mines and provide certainty for both taxpayer and the Ghana Revenue Authority.
The mining industry, Mr Parimah, said had had a relatively stable tax regime until recent increases in the corporate tax rate from 25 to 35 per cent; increase in the mineral royalty rate to 5 per cent; and changes in the capital allowance regime, among others.
These changes and other proposed changes have had a significant impact on the industry, including the effect of increased cost of production and thereby raised the pay limit of ore bodies as well as posing a serious threat to investment decisions.
Dr Toni Aubynn, Chief Executive Officer of the Ghana Chamber of Mines, called for collaboration between government and the mining industry for mutually beneficial measures to ensure survival of the mining industry.
Source: GNA