The Ghana Upstream Petroleum Chamber has cautioned government against the tendency of its proposed Growth and Sustainability Levy, triggering litigation through the international court, as it breaches provisions in the petroleum agreements.
In a statement issued by the Chamber today, March 22, 2023, it expressed worry about the government, bent on going ahead to breach these provisions to raise money from what it describes as “creeping taxation”.
It is hinged on this that the Chamber requested that government reconsiders its introduction of the growth and sustainability levy, particularly, now that the country is struggling to attract new investments in oil and gas exploration.
“The industry considers this levy as the latest in a series of crippling taxation that is affecting the economic balance of petroleum agreements.”GUPC
Some of these taxes, the Chamber disclosed include: the COVID-19 Recovery Levy, Ghana Education Trust Fund Levy, National Insurance Levy, the 1% Local Content Fund Levy, amongst several others. The Chamber added that:
“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 dis-incentivize new oil and gas investment at a time when financial institutions are curtailing investment in fossil fuels.”GUPC
This, the Chamber noted expressing its worry about the future repercussions of government’s proposed levy on investment in the petroleum sector, especially, on the newly introduced Gold-for-Oil Programme the country is currently implementing, which many stakeholders reported has contributed to the reduction of fuel prices at the pump.
In its statement, the Ghana Upstream Petroleum Chamber maintained that provision for a 1% tax on gross production for oil and gas companies, represents an increase in royalty for all intents and purposes.
Additionally, the Chamber disclosed that there is also a 5% tax on profit-before-tax that applies to the oil and gas service companies, implying that taxes will be imposed regardless of the financial performance of the target business. Thus the Chamber stated:
“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 triggers disinvestment by International Oil Companies.”GUPC
Officials of GUPC worried about the probable outcomes of imposition of the levies
The new tax policy also received a lot of comments from some officials of the Chamber, with the Senior Vice President of Kosmos Energy Ghana, and Chairman of the Upstream Petroleum Chamber, Nana Joe Mensah, indicating that the “Growth and Sustainability Levy will damage investments“.
On his part, the CEO of the Upstream Petroleum Chamber, David Ampofo noted that the initiative by the government is going to impede sector growth.
“This new tax is an increase in royalties in disguise and an imposition that will inhibit further, the growth of our service companies.”David Ampofo
The lack of stability and predictability on a matter as important as tax, the Chamber noted, means businesses cannot even be sure what their investment returns are likely to be.
It is therefore expedient and 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 crippling taxes such as this are an example.
However, the Chamber noted its readiness to join hands with affected parties to engage government on the matter.
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