Ghana loses US$ 70m in petroleum income tax in two years

BY EDMUND SMITH-ASANTE

Ghana has within the spate of two years lost about US$ 70 million that could have accrued to the country, in view of the failure to amend or harmonise its petroleum income tax law (PITL), the Civil Society Platform on Oil and Gas, an amalgamation of NGOs in oil and gas has stated.

According to the platform, the lack of action on a planned amendment or harmonisation of the Petroleum Income Tax Law with the general income tax provisions is costing Ghana millions of dollars in potential tax revenue, even as the government explores innovative ways of raising badly needed financial resources to finance its 2013 budget.

“Our conservative projections show that the country has lost close to US$70 million in potential tax revenue in the last two years, a situation we find inexcusable and which in our view flies in the face of the desperate attempts being made by government to raise additional tax revenue, including the imposition of taxes on some agricultural implements, some categories of imported condoms and upward adjustment in fees and levies of government’s departments and agencies,” the platform said in a statement signed by its Chair Dr Steve Manteaw and issued recently.

Stating that the failure to amend the PITL and the resultant loss of revenue amounts to criminal negligence on the part of the Ministry of Finance and possibly the Attorney General’s Department, the platform has made three demands on the Ghana Government.

Its demands are that an urgent bi-partisan parliamentary inquiry be instituted to look into the reasons for the failure to amend the PITL bill and to recommend prosecution of any person found culpable “for causing this massive financial loss to the state.”

Also, that there is an immediate search, retrieval and passage of the PITL amendment bill under a certificate of urgency to prevent further loss of potential tax revenue in future transactions.

“In this connection we wish to draw attention to a major flaw inherent in Clause 39 Section 4 of the Petroleum Income Tax Law, which provides that “Nothing in the Additional Profit Tax Law, 1985 (P.N.D.C.L. 122) or the Capital Gained Tax Decree, 1975 (N.R.C.D. 347) shall apply to petroleum operations here-under.”

Though the Capital Gained Tax Decree has been repealed, the Civil Society Platform on Oil and Gas considers that this provision can be interpreted to mean that the intent of the PITL is indeed to exempt actors in the petroleum sector from Capital Gained Tax, the statement advanced.

The platform alternatively proposed the repeal of the PITL to pave way for the application of the provisions under the general income tax law, which includes Capital Gained Tax.

“We make these demands, aware that, in so far as the PITL is referred to in the petroleum agreements of the companies, the repeal of the Act may trigger agitations for re-negotiation of aspects of the petroleum agreements of some companies, but that is likely to be a small price we will be paying compared to how much we have already lost in potential revenue, and how much we stand to lose in future transactions if the status quo is maintained,” the civil society group said.

Recalling a controversial deal the EO Group concluded with Tullow Oil in July 2011 for the transfer of the former’s 3.5 percentage stake in Kosmos Energy to the latter, the platform said in the end the deal was ratified by Government allegedly without consulting with the A-G who, according to Article 88 (1) of the 1992 Constitution of Ghana, is "the principal legal adviser to the Government."

According to the platform, ratification of the sale transaction sparked a new controversy as to whether or not Ghana can, legally speaking, tax the transaction, worth some US $305 million, but in spite of assurances by the Ministries of Energy, and Finance and Economic Planning that Ghana will apply a 10 per cent Capital Gained Tax on the transaction, amounting to US $30.5 million, the country has been unable to do that and therefore appears to have lost the potential tax revenue. 

It further expressed worry that Government has largely ignored expert opinion on the subject, to the effect that even though the General Income Tax Act (Act 592) generally imposes and mandates the payment of 10 per cent Capital Gained Tax on the trading of capital assets, the existing Petroleum Income Tax Law does not, complicating any attempts to tax the transaction.

“This opinion has been against the backdrop that, in law, specific laws (like the Petroleum Income Tax Law) takes precedence over general laws, like Act 592, which currently is deemed inconsistent with the Petroleum Income Tax Law,” the platform stated.

It expressed disappointed that Government has since its dispute over the EO Group sale done nothing about the lacuna in the Petroleum Income Tax Law, thus making it possible for Sabre Oil to also potentially get away with an undisclosed sum in receipts for its sale of a 4.05 per cent share in Tullow to South Africa’s national oil company, PetroSA.

“Unconfirmed reports say the deal was worth something in excess of US$365 million, meaning Ghana must have lost at least US $36.5 million. Combined with the revenue lost in the EO Group-Tullow transaction Ghana is losing approximately US $67 million for the lack of action on the PITL amendment bill,” the Civil Society Platform on Oil and Gas opines.