Budget Addresses 3% Withholding Tax on Gold Exports, Nothing on Revision of Mining Licensing Regime

After a few years of enforcing the 3% withholding tax on gold exports, the government has now settled on a 1.5 per cent withholding tax on unprocessed gold sales by small-scale miners to tackle dwindling gold revenues as a result of gold smuggling, but left unrevised the cumbersome nature of the licensing regime.

According to the 2022 budget statement, small scale miners will now be required to pay 1.5 per cent withholding tax on the sale of unprocessed gold, down from a previous tax payment of 3 per cent.

This is owing to the fact that exports of unprocessed gold by small scale miners through official channels declined from over 1.6 million ounces in 2019 to below 100 thousand ounces of gold as at September 2021, according to the Minister of Finance, Ken Ofori Atta.

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“To stem this tide, Government in consultation with the stakeholders in the industry has decided to reduce the withholding tax rate for sale of unprocessed gold by small scale miners on whom the incidence of the tax falls from 3 percent to 1.5 percent Government is committed to working with the relevant agencies and stakeholders in the industry to ensure compliance.”
Ken Ofori Atta, Minister of Finance

While the 3% withholding tax stands out as a major contributing factor for the decline in gold export revenues from small scale miners, another is the cumbersome nature of the licensing regime which deterred many small scale miners from going through the official channels to legitimize their operations including the sale of unprocessed gold.

In fact, the Africa Centre for Energy Policy (ACEP), in a study conducted early this year, indicated that, the existing issues transcended the non-payment of the withholding tax by small-scale miners to the fact that 95 per cent of miners who paid the tax were not issued tax certificates after payments. That, there were those who even did not pay the tax.

Issues regarding the payment of withholding tax by small–scale miners is not peculiar to Ghana. In 2019, a withholding tax of 5 per cent paid by small scale miners in Tanzania was totally scrapped by Magufuli’s government, citing the problem of tax evasion as the reason for the removal of the tax.

Gold Output by Small-Scale Miners Falls

According to data from the Ghana Chamber of Mines, gold export revenue rose from US$6.229 billion in 2019 to US$6.799 billion in 2020. The data further indicated that the 9.1 per cent uptick in gold revenue was largely an outcome of the bullish traded price of the yellow metal, which was sufficient to offset the downturn in its export volume.

At the same time, the data shows that the purchases and export of the yellow metal (gold) by the Licensed Gold Export Companies (LGEC’s), which is used as a proxy for production by small-scale sector, declined by 26 per cent.

The gold output of small-scale producers decreased from 1.588 million ounces in 2019 to 1.175 million ounces in 2020 due mainly to reasons linked to the restrictions in mobility induced by COVID-19 challenges in accessing excavators and other inputs, as well as the introduction of withholding tax on the output of small-scale miners at the point of export.

Apart from the 3 per cent withholding tax which featured as one of the pain points in the operations of small scale miners in Ghana, the Small Scale Miners Association had called on the Ministry, months prior to the presentation of the 2022 budget to address concerns about the licensing regime.

While it would have been more receptive for the government to totally scrap the 3 per cent withholding tax to drastically reduce smuggling of gold, revising the licensing regime also could have roped in more small scale miners and help to reduce illegal mining activities.