Fred Djanku, a Senior research fellow at the Institute of Statistical, Social and Economic Research, ISSER, has indicated that reducing trade-related illicit financial flows by strengthening governance systems, data management systems and policy and regulatory environment, the government can raise more revenue to finance its flagship programmes.
After the Covid-19 pandemic struck, governments of developing economies are having to deal with unsustainable debt levels, and high public spending needs, and for resource-rich nations like Ghana, maximizing revenues from mineral resources is of topmost concern.
Nonetheless, the issue of illicit financial flow remains one of the biggest bane in the mining sector, owing to existing gaps in mining sector governance. Resource governance indices for the mining sector has historically underperformed (currently 69/100, representing a satisfactory performance).
This is dwarfed by the index of the oil and gas sector (78/100) which came around only recently, compared with the over 100 years Ghana has been in the mining business with gold as its primary metal.
In fighting illicit financial flows, three key factors are needed, two of which highlight governance as the priority: building strong institutions, and a powerful anti-corruption constituency; while the third is better remuneration of public servants, according to the United Nations Economic Commission for Africa (UNECA).
Although the government has put some policies in place to effectively deal with illicit financial flows: streamlining customs operations, implementing some transparency and governance initiatives, and working towards effective anti-money laundering regulations and financial oversight, it is evident that more needs to be done to tackle this menace.
In a recent study conducted by ISSER and its partners including the Graduate Institute of Geneva as part of efforts looking to curb Illicit Financial Flows (IFFs), the study’s authors indicated that Ghana’s exports were undervalued by an estimated $8.3 billion between 2011 and 2017.
Fred Djanku, Senior research fellow at ISSER showed optimism in the fact that by putting in place measures to reduce trade-related illicit financial flows, government will raise revenue to finance its major flagship programmes.
“So, between 2011 and 2017, we realized that about GHS7.8 billion is undervalued every year. Now if you take about 25% of that which is the taxes that could have accrued to Ghana, that is about GHS1.8 billion a year.
“Now we are talking about E-Levy which is government trying to get more revenue, what it means is that if we are able to reduce this trade-related illicit financial flows by strengthening the governance systems, the data management systems and the policy and regulatory environment, what it means is that we can get more taxes from these resources than we are getting now.
“Government can then raise more revenues to be able to finance all the projects we know we have a huge infrastructure gap that we need to fill. We have flagship programmes that Ghana has to finance, so we are arguing that this is one of the ways by which we can raise more revenue. This whole agitation of e-levy and all these taxes can come down if we are able to raise more revenue through other channels”.
Fred Djanku, ISSER
Senior Economic Researcher at ISSER and member of the research team, Dr. Ama Ahene-Cudjoe, during the presentation of the findings said:
“We estimated that gold was abnormally undervalued at about $8.3 billion at constant prices and the base year is 2011. Our study was between 2011 and 2017. And in current prices, this is about $3.8 billion and this constitutes approximately 11% of the total value of gold exported during this period.
“The top five destination countries of these undervalued gold exports include major gold refining destinations, India, South Africa, United Arab Emirates, Switzerland and Portugal. This represented major gold refining, trading and manufacturing destinations.
Dr Ama Ahene-Cudjoe, ISSER
The researcher also highlighted the need to better improve data collection capacity of institutions engaged in the export of these commodities; streamlining and simplification of processes for receiving and accounting for gold export revenue.
Greater Transparency Needed
This amounts to achieving greater transparency in designing new or improved policies to address this menace.
With public disclosure of beneficial ownership within the extractive industry nearing full implementation, the use of such information on trading companies and information from cross-border tax information sharing agreements should be harnessed in order to question suspect transactions.
Apart from these recommendations, the government’s move to reduce export tax on unprocessed gold ore, will also go a long way to reduce incidences of revenues lost from gold exports through smuggling and other illicit trade activities in the sector.
Following an introspection of its passage of a 3% withholding tax on gold exports a few years ago, the government, in the 2022 budget statement settled on a 1.5 per cent withholding tax on unprocessed gold sales by small-scale miners to tackle dwindling gold revenues. It noted that, the rate of export tax was influencing gold smuggling and to a large extent illicit financial flows.
“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-Attah, Minister of Finance
Ghana is at a crucial point in its history, as concerns of generating more revenue to meet ballooning budget spending and debt obligations heighten. Thus, efforts must be channeled to reducing avenues through which potential revenues are lost in order to lessen the burden of citizens over the imposition of new levies.
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