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Business News of Monday, 5 November 2012

Source: Economic Tribune

Mining firms push for tax credit…As AngloGold shuts down operations

The mining industry, reeling under threats of increased resource rent tax and excessive demands to provide basic infrastructure in mining communities, is looking to kill two birds with one stone.

A proposition for a system of tax credit is gaining currency among industry players and analysts that it could help reallocate more of miners’ tax contributions to host communities thereby promoting their development and easing growing pressures, both on mining companies and government.

An industry consultant, Mr. Sam Adam, who proposed the tax credit scheme at the second Ghana Chamber of Mines’ Mining for Development Forum in Accra last week said the scheme would serve as an infrastructure development programme that will allow government to use resource developers as contractors to implement infrastructure projects without the need for appropriation from the Treasury.

Under the scheme, approved government projects are funded, managed and implemented by the developer, and expenditure thereof set-off against tax payable by the company for the year. It is set as a percentage of the annual assessable income of the company; for example one or two percent. The Tax Credit Scheme, in effect, is first call on government resources.

This, Adam said: “the scheme will help solve the problem of growing discontent among youth, chiefs and communities in general in resource development areas which receive little in return by way of infrastructure development.”

The scheme’s adoption, he said, is imperative against a backdrop of critical factors including the inability of government to rely on annual budgetary allocations to satisfy the growing demand for infrastructure development in these areas.

Also is the lack of sufficient planning, engineering, construction and financial management capacity in District Assemblies in the host communities to undertake significant development projects; while on the other hand, resource developers have a high level of competence in construction in their operational areas and base regions that allow for cost- effective delivery of infrastructure projects.

The scheme, Adam added, will have an added advantage of enabling developers to be perceived as responsible businesses with community focus, thus improving their relationship with the host population – a win-win for all – including government, miners, and host communities

Dr. Toni Aubynn, CEO of the Ghana Chamber of Mines, also argued that any fair discussion of resources tax must not only look at the miners’ current earnings side of the equation but also how the hundreds of millions of dollars they pump into the economy is applied to developing the host communities.

Though unconfirmed indications are that a 10-percent tax on windfall profits, imposed on mining companies, may not be applied anytime soon, it still is a potential albatross around miners’ necks. Already the government had raised corporate tax for mining companies from 25percent to 35 percent.

Compounding the challenges for mining companies is their growing outlay on corporate social responsibility, approximately $27 million in 2011, which increasingly is being determined more by the host communities than by the companies. Dr. Aubynn says the round figures speak volumes about what the mining companies are contributing to the national economy and why it shouldn’t be burdened further.

The mining industry is the number one tax payer and highest contributor to the Ghana Revenue Authority (GRA). The sector contributed about $540million to GRA representing 27.61percent of total Internal Revenue collections in 2011.

Miners paid $360 million, in corporate tax to the GRA, representing 38.26percent of the total company tax collected in 2011, while the sector voluntary contributed an amount of about $27 million to their communities and the general public.

The industry contributed about 42 percent of gross merchandise exports earnings and mining companies returned about $3.1 billion representing 75 percent of their mineral revenue through the Bank of Ghana and the commercial banks in 2011 against statutory requirement of 25 percent.

Meanwhile, AngloGold Ashanti, the world’s third largest gold producer, has suspended operations at its TauTona mine in South Africa due to a worker sit-in protest over a bonus payment, the company has said on Friday.

“There are about 300 people doing a sit-in underground. Management is talking to them,” company spokesperson Alan Fine said.

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