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Some tax waivers increase burden on regulator to ensure compliance – African Centre for Energy Policy
Kaieteur News – Tax exemptions are useful tools to stimulate investment. However, in the absence of proper planning, a country could suffer disadvantages such as the increased burden, which the tax collector and regulator must take on, in order to ensure there is compliance with tax obligations.
As a result of this finding, the African Centre for Energy Policy (ACEP) advises that any decision on exemptions should be informed by scientific analyses with measurable outcomes and timelines, ensuring that the regulator’s burden is kept to minimum.
ACEP, a policy think-thank focused on the energy and extractives sector in Africa, conducted a study of the usefulness of exemptions to Ghana’s mining sector and produced a report in January, titled The Relevance of Tax Exemptions in Ghana: The Case of the Mining Industry.
Under the Tax Concession Agreement (TCA) of some of the mining companies operating in Ghana, “import duty waivers are extended to petty items such as white boards, TV/monitor brackets and broadband routers,” ACEP noted. While these are products, which could be sourced on the domestic market in Ghana, the waivers incentivize mining companies to import, creating an environment which may not be as conducive to the development of local manufacturing businesses. This could inhibit the ability of locals to enter the value chains of the energy and extractives sector.
If these products were being sourced from the domestic market, the Ghana Revenue Authority (GRA) would be less burdened by the need to place resources and manpower into monitoring the compliance of mining companies with the obligations of their exemptions. 
The regulator would have to place resources into developing knowledge about the products coming from foreign markets, for auditing purposes. In some instances, if the tax authority wanted to verify, the cost of audits could be higher than the tax incident, said ACEP.
“Some of these exemptions,” ACEP said, “require micro-monitoring by the Ghana Revenue Authority (GRA) to [sort through the] logistical constraints [of importation] and administrative burden. It would, for example, have to ensure that the company is not importing more than it needs for the operation for which the waiver was granted.
If the company is doing such a thing for any potentially corrupt business purpose, such as resale, it would be robbing the country of tax revenues which could have come from the taxed, legal importation of the product(s) in question.
Recent debates in Guyana about the tax exemptions granted to oil companies has addressed this potential for abuses. All of Guyana’s petroleum agreements have granted oil companies blanket waivers of all taxes. Simultaneously, there is debate about local content provisions, which seldom consider taxes as a mechanism to incentivize for local content purposes, as the blanket tax waivers are held in place by rigid stabilization clauses. No changes can be made to the economics of the agreements, without government having to compensate the contractors, their affiliates and sub-contractors for losses.
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.
Guyana’s extractives sector has already been victim to abuses of tax waivers by foreign companies. One notable instance is the abuses meted out by Bai Shan Lin Forest Development Inc. A 2016 forensic audit report conducted by the then Auditor General, Anand Goolsarran, had found that the Chinese company was granted concessions for machinery, equipment and construction materials which were excessive and, in many instances, had nothing to do with its work.
The data showed that during the period 2012 to 2015, the People’s Progressive Party/Civic administration granted Bai Shan Lin fiscal concessions. The items carried a value of $7.5 billion, equivalent to US$37.3 million. The total value of concessions granted amounted to $1.827 billion. The report noted that GRA indicated that it was unable to provide information relating to the earlier years because of computer problems.
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