The future of Ghana’s vital mining sector hangs in the balance, according to the Ghana Chamber of Mines. Acting Chief Executive Ahmed Nantogmah recently warned that newly implemented tax measures threaten to undermine the industry’s competitiveness, potentially leading to a decline in investment and even the collapse of existing mining operations. The source of the Chamber’s concern lies in two key policies: a 3% levy on gross production and the imposition of Value Added Tax (VAT) on exploration activities, a move that has sparked widespread alarm within the industry.

For years, the mining sector has been a crucial pillar of the Ghanaian economy, contributing significantly to employment, exports, and government revenue. However, the Chamber fears that these new taxes will reverse the progress made and drive away potential investors, jeopardizing the sector’s long-term sustainability. The imposition of VAT on exploration is of particular concern, threatening the discovery of new mineral deposits and harming the long-term productivity of the industry.

“Exploration is the lifeline of mining, and now there’s a VAT on exploration,” said Ahmed Nantogmah, emphasizing the severity of the situation. “Most of these explorers are risk takers, but they are being punished for taking that risk.”

The consequences of these policies, the Chamber warns, could be far-reaching, impacting not only mining companies but also the broader Ghanaian economy.

The Ghana Chamber of Mines has identified two primary tax measures that it believes pose a significant threat to the mining sector. The first is a 3% levy on gross production, which increases the financial burden on mining companies already grappling with fluctuating commodity prices and rising operational costs. The second, and perhaps more concerning, is the imposition of Value Added Tax (VAT) on exploration activities.

According to industry experts, these measures have the potential to create a hostile environment for investment and deter companies from undertaking exploration projects in Ghana. The long-term impact could be a decline in the discovery of new mineral deposits, hindering the growth and sustainability of the mining sector.

“Exploration is the lifeline of mining, and now there’s a VAT on exploration. Most of these explorers are risk takers, but they are being punished for taking that risk,” warned Ahmed Nantogmah, Acting Chief Executive of the Ghana Chamber of Mines. The imposition of VAT on exploration is a central reason for the industry’s concern regarding the future of mining in Ghana.

Exploration is the lifeblood of the mining industry. It is the process by which new mineral deposits are discovered, ensuring the long-term sustainability of the sector. The Ghana Chamber of Mines argues that the imposition of VAT on exploration activities is particularly damaging because it increases the financial risks associated with this critical process.

Exploration companies, especially smaller firms, often spend significant amounts of money on drilling, assaying, and other exploration-related activities. The VAT is applied to these expenses, even if the exploration efforts are unsuccessful. This means that exploration companies are required to pay VAT on expenses incurred during exploration, even if no discoveries are made, further increasing the financial burden on them.

“You can imagine putting $10 million into exploration, making no discovery, and still paying VAT on that failed attempt,” said Ahmed Nantogmah. “That VAT will not be refunded. It’s money thrown down the drain.” The imposition of this tax on what is already a high-risk industry threatens the continued viability of mining in Ghana.

In response to the new tax policies, mining companies, particularly smaller exploration firms, are beginning to relocate their operations to neighboring countries that offer more favorable investment climates. This shift is driven by the desire to avoid the increased financial burden imposed by the 3% levy on gross production and the VAT on exploration activities in Ghana. The tax policy is damaging to mining in Ghana.

Countries like Côte d’Ivoire and Kenya are actively courting mining companies with attractive incentives and a more stable regulatory environment. These countries recognize the importance of exploration in sustaining their mining industries and are offering tax breaks and other benefits to encourage investment. As a result, Ghana is losing ground to its competitors in the race to attract exploration investment.

“These companies are small. They don’t have deep pockets. That’s why they go to places like Kenya or Ivory Coast, where they don’t pay this VAT. So, you’ll see a movement of exploration companies going there,” explained Ahmed Nantogmah.

The long-term consequences of the new tax policies could be dire for Ghana’s mining sector and the broader economy. As exploration activity declines, the discovery of new mineral deposits will decrease, leading to a slowdown in the development of new mines. This, in turn, will negatively impact Ghana’s mining output, export earnings, and government revenue streams.

Ghana is already facing stiff competition from other African countries in attracting mining investment. The new tax policies will only exacerbate this challenge, further eroding Ghana’s competitive edge and potentially leading to a decline in its position as a leading mining destination in Africa. Without a vibrant mining in Ghana, the country risks losing a vital component of its economy.

“No exploration today means no new mines tomorrow,” warned Ahmed Nantogmah, underscoring the importance of exploration in ensuring the long-term sustainability of the mining sector.

The Ghana Chamber of Mines has presented a clear warning: the new tax measures are detrimental to the country’s mining sector. The 3% levy on gross production and VAT on exploration create a hostile environment, especially for smaller exploration firms. As companies relocate to countries with more favorable policies, Ghana risks losing its competitive edge and jeopardizing future mining output and revenues. Urgent reconsideration of these tax policies is needed to prevent a potential collapse and ensure the long-term sustainability of mining in Ghana. Contact your local representatives to discuss the importance of reevaluating these taxes.