The Relevance of Tax Exemptions in Ghana: The Case of the Mining Industry
Taxation has been identified as the most sustainable source of revenue mobilization for socioeconomic development. Many low-income countries mobilize about 16 percent tax-to-GDP ratio while emerging markets and advanced economies mobilize about 18 percent and 26 percent taxto-GDP ratio respectively (Gaspar, Amaglobeli, Garcia-Escribano, Prady, & Soto, 2019).
Resource-rich countries in Africa rely heavily on resource rents which makes the extractive sector a dominant contributor to national budget financing (UNECA, 2018). Evidence suggests that further optimization of the resource sector could generate more revenue from the sector to governments, if revenue leakages, through tax avoidance and evasion and other illicit financial flows are addressed.
In Ghana, the mining sector is a major contributor to GDP attracting significant investment inflows of about USD 11billion between 2006 and 2017 (Minerals Commission, 2018) and contributed about GHS 2.16 billion and GHS 2.36 billion in tax revenues in 2017 and 2018 respectively (Chamber of Mines, 2019). In return, the country also granted GHS 1.422 billion in tax exemptions to the sector between 2008 and 2015 (Ministry of Finance, 2015). This brings to the fore the need to examine the trade-offs between investments and exemptions.
In recent times, the government has recognized the need to review the tax exemptions regime, to ensure that they are effective, and efficient. The objective of this study is, therefore, to explore the extent of tax exemptions and their relevance in Ghana’s mining sector. The study relied on data from secondary sources. To understand the extent of relevance of tax exemptions, the study assesses the effects these exemptions have had on three indicators that are often cited as the justification for granting them: attraction of foreign direct investments; creation of direct jobs for Ghanaians in the formal sector; and development of local businesses along the mining sector’s value chain.