Ghana’s extractive industry may be on the brink of significant fiscal reforms as calls for a greater government stake in the sector gain momentum.
Aside calls from Ghana’s leading think tanks, policy institutes, and civil society organizations for commanding interests in the extractive sector, Ghanaian leader, President John Dramani Mahama has lately endorsed calls for increased indigenous participation and a review of existing agreements governing the sector.
“There must be increased indigenous participation in the exploitation of our natural resources. Ghana must earn more from its natural resource endowment if we are to create wealth and prosperity for our people,” President Mahama stated, acknowledging concerns that the current fiscal regime does not maximize national benefits.
His remarks echo sentiments expressed by former Chief Justice Sophia Akuffo, who has advocated for a review of the 1992 Constitution to ensure the country secures better deals in its extractive sector. Justice Akuffo compared Ghana’s agreements with those of other jurisdictions and concluded that the country is losing out due to outdated policies.
Low Government Revenue from Extractive Rents
Finance Minister Dr. Cassiel Ato Forson, addressing the National Economic Dialogue, revealed that while Ghana’s extractive sector generates natural resource rents equivalent to 14% of GDP, the government captures only 1.5% in revenue.
“Natural resource rent is the difference between the revenue generated from a commodity and the cost of producing it. In Ghana, the extractive sector enjoys a rent of 14%, yet the country is unable to fully benefit from this,” Dr. Forson explained. He argued that if the government could increase its share by just 1% more, the additional revenue could be channeled into infrastructure development and human capital investments.
Dr. Forson criticized existing agreements in the mining and petroleum sectors, arguing that they fail to maximize state revenue from Ghana’s gold, oil, and other mineral resources. He emphasized the urgency of fiscal policy reforms to reduce the country’s dependence on external financing.
Ghana’s Mining Fiscal Regime
Ghana’s mining fiscal regime operates on a concessionary basis, including the following components:
- Company Income Tax (CIT) at 35%
- Royalty rate of 5% on the gross market value of mineral sales
- Withholding tax rates of 8% on interest and dividends, 10% on royalty payments, and 15% on management services
- A 1.5% withholding tax on small-scale miners
Despite these tax measures, experts argue that the country’s overall revenue take from mining remains relatively low compared to international benchmarks.
Rethinking Mining Taxation: Strategies for Sustainable Revenue Growth
Ghana is not alone in reconsidering its mining fiscal framework. The Intergovernmental Forum (IGF) on Mining, Minerals, Metals, and Sustainable Development, in partnership with the African Tax Administration Forum (ATAF), has been exploring innovative ways for resource-rich nations to maximize the returns from their mineral wealth.
In 2020, they, with contributions from bodies like the Natural Reosurce Governance Institue (NRGI) launched the Future of Resource Taxation project to evaluate and improve the existing taxation systems for the mining sector.
The project recognizes that mining sits at the intersection of several global challenges, including climate change, the transition to low-carbon energy, labor market disruptions caused by new technologies, and growing calls for tax fairness. Given this context, governments worldwide need innovative fiscal measures to protect public financial interests and ensure long-term economic benefits.
One key outcome of the initiative is the IGF’s handbook, The Future of Resource Taxation: 10 Policy Ideas to Mobilize Mining Revenues, which presents new fiscal strategies to help governments enhance revenue collection from the mining sector.
Fiscal Terms of Ghana’s Oil and Gas industry
Royalty Payments
Offshore blocks attract 10% royalty on gross production while deepwater operations could pay lower royalty rates, negotiated on a case-by-case basis.
Corporate Income Tax (CIT)
Oil and gas companies pay 35% corporate income tax on profits. Companies are allowed capital cost recovery, meaning they can deduct certain expenses before taxation.
Carried and Participating Interest
The Ghana National Petroleum Corporation (GNPC) typically has a carried interest of 10% with an additional participating interest of up to 15%, which is exercised after discovery.
Surface Rentals
Operators pay an annual surface rental fee per square kilometer of the contract area. PIAC reports that total surface rental arrears remain high at US$1,212,335.53 excluding that of terminated petroleum agreements.
Local Content and Fiscal Incentives
Contractors are required to adhere to local content requirements, hiring Ghanaian personnel and using local services with tax incentives for investing in infrastructure and technology transfer.
No new investments in oil and gas sector
The Public Interest and Accountability Committee (PIAC) notes that no new Petroleum Agreement has been signed since 2018, a development that
Advocacy for Stronger Government Control
It will be recalled that the Institute for Fiscal Studies (IFS) has consistently urged the government to adopt a more assertive approach by securing controlling interests in the extractive sector through joint ventures or production-sharing agreements. The IFS maintains that a higher government take would yield two major benefits: first, it would generate sufficient fiscal revenue to support economic management, and second, it would ensure that a greater share of export earnings in foreign currencies remains within Ghana. This, in turn, would strengthen the cedi and mitigate the risks associated with excessive external borrowing and debt servicing.
Similarly, the Institute of Economic Affairs (IEA) argues that Ghana must implement proactive measures to maximize its natural resource wealth. The IEA contends that a substantial portion of profits from the extractive industry currently flows to multinational corporations, which repatriate earnings abroad, limiting Ghana’s economic gains.
