Indigenous and foreign oil and gas firms operating in the Republic of Ghana are warning of the possible collapse of the West African nation’s upstream sector due to the proposed Growth and Sustainability Levy.
According to the firms, the proposed Growth and Sustainability Levy, if passed, would cripple the local upstream firms and also trigger disinvestment by the IOCs.
As part of efforts to secure a three billion dollar bailout from the International Monetary Fund (IMF), Ghana is seeking the passage of some revenue bills.
The bills include the Excise Tax Stamp and Excise Duty Amendment, Income Tax amendment and Growth and Sustainability Levy, among others.
However, the move has been criticised by the Ghana Upstream Petroleum Chamber.
“The provision for a 1% tax on gross production for oil and gas companies represents an increase in royalty. There is also a 5% tax on profit before tax that applies to the oil and gas service companies, meaning taxes will be imposed irrespective of the financial performance of the target business.
“Introducing additional taxes at a time when the industry is going through challenging times is rather unfortunate, anti-business and risks the collapse of indigenous oil service companies as well as trigger disinvestment by International Oil Companies,” a statement by the Chamber said.
According to the chamber, the industry considers this levy as the latest in a series of creeping taxation that is affecting the economic balance of petroleum agreements.
Other examples of creeping taxation include the COVID-19 Recovery Levy, Ghana Education Trust Fund Levy, National Insurance Levy and the one per cent Local Content Fund Levy.
The chamber urged the government to pursue a path of reserves and revenue growth through the expedited award of exploration blocks to prospective investors rather than breaching provisions of Petroleum Agreements to raise money from creeping taxation, which could trigger litigation through the international courts.
“This new tax disregards the importance of the preservation of contract sanctity to the promotion of new investment.
“Unpredictability of the fiscal terms of our petroleum agreements will disincentivise new oil and gas investment at a time when financial institutions are curtailing investment in fossil fuels.
“This Growth and Sustainability Levy will damage investments,” commented Joe Mensah, Senior Vice President of Kosmos Energy Ghana, and Chairman of the Upstream Petroleum Chamber.
In his comments on the issue, the CEO of the Upstream Petroleum Chamber, David Ampofo said, “This new tax is an increase in royalties in disguise and imposition that will inhibit further the growth of our service companies.
“The lack of stability and predictability on a matter as important as tax means businesses cannot even be sure what their investment returns are likely to be.
“It is in Ghana’s continued interest to encourage exploration and development of its hydrocarbon reserves by attracting foreign capital, but there are taxation impediments that need addressing, and creeping taxes such as this are an example.
“When creeping taxes and levies become the norm, tax avoidance and disinvestment become inevitable.
“We, therefore, urge the government to reconsider the Bill and send a positive signal to the market.
“Industry is ready to join hands with other affected parties to engage the government on this matter,” the chamber concluded.