ACCRA, Ghana — For centuries, Europeans stripped Ghana of its gold deposits to such an extent that in colonial times it was known as the Gold Coast.
Now Ghana is considering increasing the tax it levies on all gold production. Ghana could increase its annual earnings by tens of millions of dollars by raising the royalties its charges the mostly foreign mining companies, a new report argues. The funds could be used to boost spending on health and education and help Ghana weather the global financial crisis, said the report by a consortium of charity groups.
The attraction is obvious because gold prices have reached 20-year highs as a result of the global financial meltdown. Ghana's gold output increased by 4 percent in 2008 to 2.6 million ounces. As a result of the rising price for gold, mining revenues increased to $2.3 billion.
Currently mining companies pay royalties of 3 percent of their revenue to the Ghanaian state, but the law allows authorities the flexibility to collect up to 6 percent.
“Certainly it is going to be changed,” said Adomako Baafi, marketing officer of the Ghana Minerals Commission. “It must go up. It is before the Parliament.”
Abdulai Darimani, spokesman for Accra-based Third World Network-Africa Secretariat, suggested that 5 percent is a fair rate for both sides. Just as important, he said, is making sure the new revenue is spent productively.
“We need to have national and regional development strategies within which we can define the role of foreign direct investment and provide terms under which its operation will optimize the development strategy,” said Darimani. “The favorable terms should be offered in relation to how supportive they are to national development agenda.”
Ghana's earning in royalties and corporate taxes from gold mining companies has doubled since 2005 thanks to increased volume and rising gold prices. The royalties brought in about $70 million last year.
A report by several non-governmental organizations, including Action Aid International, Christian Aid and the Third World Network, argues that Ghana could boost tax revenue by an additional $68 million annually by increasing its royalty rates and improve the government's auditing of multinational companies.
Ghana, as well as other African countries, should reform their tax laws to capture more revenue, which should then be spent on development plans to lift people out of poverty, the report said. The report also urges the government to be more strict in protecting the environment and safety conditions for miners.
Not surprisingly, the mining industry disagrees, reminding that Ghana wasn’t always Africa’s beacon of democracy and that the revenue from mining could be used to prop up military dictatorships.
Ghana's state-owned mines were on life support in the mid-1980s, as was the overall economy, following a string of coups d’etat after it won independence from Britain in 1957. The World Bank was the only willing lender but pushed for reforms, like privatization, to attract foreign money.
“At the time the 1986 laws were put in place, the country was in very dire circumstances,” said Joyce Aryee, chief executive of the Ghana Chamber of Mines. “Investment money goes where it feels comfortable.”
Investors became very comfortable in Ghana, pumping billions of dollars into exploration and extraction, resulting in a tenfold increase in gold production since the early 1980s.
“I don’t think any nation thinks that they get enough revenue,” said Aryee, adding that in addition to taxes, mining companies spend hundreds of thousands of dollars each year on schools, health centers and roads in the mining communities.
Aryee said it’s the government’s prerogative to impose more taxes but argued “changing goalposts in the middle of the game is not going very good.”
But economist and investment consultant Kwame Pianim says the one-size-fits-all approach is unfair to Ghana, Africa’s second-largest gold producer behind South Africa. Ghana is much less of a risk than it once was, he said.
“New mining companies coming in … they should not have the same fiscal regime,” he said. “The new contracts that are coming in should be based on the fact that you adjust the risk. The risk profile has changed and therefore the fiscal regime should also change.”
Since 2000 almost 75 percent of foreign investment coming to Ghana has been in mining, according to a report last year by the International Food Policy Research Institute.
Pianim criticized mining companies for excluding themselves from the local communities, such as importing goods for their foreign workers. He said gold is refined outside Ghana, preventing the country from earning more revenue.
“We have for over 100 years failed to be able to build the gold mining industry into an integral part of the national economy," he said. "This is the biggest sadness of some of these mineral explorations.”
Editor's note: This dispatch was updated to include additional information.
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