Some tax exemptions stifle local business development – African Centre for Energy Policy

Dec 27, 2020 News

Some tax exemptions stifle local business development
– African Centre for Energy Policy

Kaieteur News – Certain tax exemptions have the effect of stifling local business development for the value chains of the extractives industry, said the African Centre for Energy Policy (ACEP) after conducting research into the usefulness in Ghana’s mining sector.
The finding is one of several, which developing countries could find useful. ACEP is a think-tank that conducts high quality research, analysis and advocacy in the energy and extractives sectors in Africa.
In a January 2020 report, titled The Relevance of Tax Exemptions in Ghana: The Case of the Mining Industry, ACEP said that import duty exemptions on items that could be produced or sourced locally hurt the competitiveness and growth of local businesses.
Providing examples of this, ACEP said that, in Ghana, under the Tax Concession Agreement (TCA) of some of the mining companies, “import duty waivers are extended to petty items such as white boards, TV/monitor brackets and broadband routers…”

These are products, it said, which can be procured on the domestic market. However, because of the granting of import waivers, locals who would want to develop those products are entering a market with buyers who are more incentivized to buy overseas.
“The wholesale granting of import waivers on procurements that could be done domestically could be disadvantageous to the competitiveness of Ghanaian businesses, the State’s import substitution industrialization, taxes and employment opportunities that such businesses would generate,” the policy think-tank said.
This is not favourable for ACEP. It is of the view that governments must focus on creating an environment that is conducive to supporting local manufacturing and boost the competitive of local businesses as they look to the value chains of this extractive sector.
“Key business growth interventions such increasing access to credits, reducing cost of borrowing and improving infrastructure and service delivery are critical pieces government must develop.”
Further, ACEP said that the onus is on the government to pursue an agenda that improves on the parameters of waivers so that the desired transformation expected by tax breaks are realized.
ACEP holds that the extractive sector holds higher economic promise if the value chain is optimized to encourage local manufacturing and supply of goods and services.
In Guyana, tax waivers granted to extractives companies is a contentious issue. All of Guyana’s petroleum agreements have granted oil companies blanket waivers of all taxes. These agreements are held in place by rigid stabilization clauses. On another front, there is intense debate about the effectiveness of the government’s efforts to provide an environment, which allows locals access to the oil and gas value chain. Oftentimes, these conversations are unrelated. Because of the permanent and immovable blanket tax waiver granted to oil companies, no local content policy has even suggested the use of tax waivers, or the removal thereof, to improve local content.
During a recent interview on Kaieteur Radio, Vice President Dr. Bharrat Jagdeo said that the tax regime for oil companies is too liberal, and committed to producing better agreements in the future.

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