Ghana losing tax revenue to extractive sector over lack of data
The absence of adequate data on the operations of businesses in the extractive sector continues to impede the GRA’s ability to fully implement Ghana’s transfer pricing policy.
According to the Deputy Commissioner in charge of Policy Programs at the GRA, Edward Gyamerah, the issue makes it difficult to fully assess operational costs quoted by the various companies for purposes of taxation.
“One of the major challenge which is facing the department has to do with data… we ask ourselves which data should taxpayers use in arriving at their arms length prices. I do not think we have a data that the GRA is using or expects that once you do it within this; it will be an acceptable arms length price,” he stated.
The United Nations Economic Commission for Africa (UNECA) has stated that the continent loses about 50 billion dollars annually to illicit financial flows, of which abuse of price transfer is a primary cause.
A 2015 report by the Natural Resource Governance Institute (NRGI) also indicates that Ghana is yet to receive its share of taxes from Sinopec International Petroleum Services Corporation, which was engaged in the construction of the Jubilee fields gas processing plant at Atuabo; after the company was found to have inflated the cost of the processing plant by about 40 million dollars.
Transfer pricing policy
Transfer pricing is a mechanism by which prices are chosen to value transactions between related legal entities within the same multinational enterprise.
Transactions may include controlled or intra-group transactions and may include the purchase or sale of goods or intangible assets, the provision of services, financing, cost allocation and cost sharing agreements.
But the system is said to be abused when enterprises inflate prices compared to the ordinary market prices otherwise referred to as arm.
This subsequently reduces their corporate tax obligations.
GRA cannot pursue legal action
Edward Gyamerah who made the remarks at the launch of the report by the NRGI, also cast doubt of a successful case in court should the GRA take legal action against companies for non-compliance in the absence of adequate data.
“As it stands now, we have not had any cases going to the court but if we are to go to court I am not too sure how we are going to defend it,” he intimated.
Challenges impeding policy implementation
Other challenges the study cited as confronting the implementation of the policy is the lack of independent verification of the fineness of the gold exported from Ghana.
While the mining companies and refineries provide assay results as the basis for calculation of royalties, the government lacks the facilities to independently evaluate gold fineness, exposing it to risk of under invoicing.
In addition, the GRA receives no information from other tax jurisdictions on the parent companies or affiliates of local companies registered in Ghana.
In 2011, Ghana signed the OECD Convention on Mutual Administrative Assistance in Tax matters, however they are yet to establish any relationships with tax administrations in signatory countries other than South Africa.
Some recommendations suggested by the study are that; the Ministry of Petroleum should amend the Minerals Act 2006 and the Petroleum Income Tax Law 1987 to explicitly reference Section 31 of the Income Tax Law, requiring the arms length principle to be applied to all related party transactions, with particular emphasis on deductible expenditure.
Also, the Finance Ministry in partnership with the GRA and the Minerals Commission should establish an online information-sharing platform to improve exchange information.
This platform, the report contends should consolidate all production and financial data from mining companies.
Access to the platform should be strictly controlled, with systems put in place to ensure the confidentiality of information.