...As it fails to amend Petroleum Income Tax Law

The Civil Society Platform on Oil and Gas, a policy advocacy group, has described as disingenuous recent tax measures instituted by the Minister of Finance and Economic Planning at a time when the country has blatantly failed to amend the Petroleum Income Tax Law (PITL) to cater for Capital Gained Tax and as a result lost close to US$70 million in potential tax revenue.

A statement released by the group in Takoradi last Thursday on the sidelines of a regional dissemi-nation workshop on the 2010-2011 Extractive Industries Transparency Initiative (EITI) audit reports for the oil, gas, and mining sectors said “the lack of action on a planned amendment or harmoni-sation of the Petroleum Income Tax Law (PITL) 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.” The Platform says the country's loss at a time when government appears to be clutching at every straw in its way to stay afloat, is inexcusable The statement recalls that, in July 2011 the EO Group concluded a deal with Tullow Oil for the transfer of the former's 3.5 percentage stake in Kosmos Energy to the latter. It says the question as to whether or not to assent to the deal became a source of controversy, with the then Attorney General and Minister for Justice Mr Martin Amidu disagreeing sharply with the then Energy Minister, Dr Joe Oteng Adjei on the matter.

While the A-G wanted the Government to withhold assent because of a supposed prima facie case established against the EO Group and on the basis of which criminal proceedings were being initiated for acquiring its 3.5 per cent stake fraudulently, the Minister for Energy thought the Government could go ahead and ratify the deal as ratification of the deal, in the view of the Minister for Energy, will not indemnify EO Group from prosecution.

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." The statement further recalled, that the 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. It notes that in spite of assurances by the Ministries of Energy, and Finance and Economy Planning that Ghana will apply a 10 percent 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 that potential tax revenue. The Civil Society Platform on Oil and Gas is deeply concerned that Government has largely ignored expert opinion on the subject, to the effect that even though the General Income Tax Act (Act 592) imposes and mandates the payment of 10 percent Capital Gains Tax on the trading of capital assets, the existing Petroleum Income Tax Law does not, complicating any attempts to tax the transaction. This opinion, the Platform says, 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 oil and gas advocacy group projects that, the lost revenue is in excess of what the country is able to collect in condom tax from the total sale of condoms in a year, and could have been applied to building road infrastructure or schools or even providing boreholes for some local communities which lack safe drinking water.

The failure to amend the PITL and the resultant loss of revenue, in the opinion of the Group, amounts to criminal negligence on the part of the Ministry of Finance and possibly the Attorney General's Department.

The Civil Society Platform on Oil and Gas says a Petroleum Income Tax amendment bill was awaiting clearance by the Attorney-General as at July 2011 to be taken through the process of passage, but somehow work on the bill stalled. The group is disappointed that the government has since its dispute over the EO Group sale done nothing about the lacuna in the Petroleum Income Tax Law, making it possible for Sabre Oil to also potentially get away with an undisclosed sum in receipts for its sale of a 4.05 percent share in Tullow to South Africa's national oil company, PetroSA. Unconfirmed reports say the deal was worth something in excess of US$365 mil-lion, 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 Group's chair, Dr Steve Manteaw told journalists in Takoradi. The statement makes the following three key demands of government: 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; The 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, the Platform draws 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.” The Platform contends that, though the Capital Gained Tax Decree has been repealed, the 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.

Alternatively, the Group proposes 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.

The Platform says it makes 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 in its view, that is likely to be a small price to pay compared to how much the country has already lost in potential revenue, and how much it stands to lose in future transactions if the status quo is maintained.