The tax fracas, Tullow’s march to the ICC and Ghana’s IMF deal

Undoubtedly, the action of the state tax collector has created some level of uncertainty around Ghana’s tax laws and how they are interpreted and applied. Giving impetus to this assertion is the fact that the companies in question have been complying with the state’s tax laws based on their contractual understanding over decades during which period the GRA has had no cause to flag them for any violations.

If today they are being cited for not honouring their back taxes, the question that jumps to mind is whether the GRA is now looking backward to reinterpret Ghana’s tax laws in terms of how they are applied; which will then show clearly that the way the tax body has gone about the issue is one-sided.

There is also the issue of fairness in this whole back-tax fracas if one was to question the scope and nature of the audit process. It appears the demands are being made on only the big multinationals with the wherewithal to cough out the several millions of dollars that the GRA is seeking to retrieve. In any case, one would have expected that the rule is applied to all taxpayers, be it the multinationals or local companies.

It must be said that this tax misunderstanding does not augur well for investments looking into the short-term because having certainty about a country’s tax laws and how they are applied are key criteria that investors consider in pushing their capital into an economy.

How Tullow’s international arbitration call could impact Ghana’s IMF bailout

While MTN's tax assessments have been withdrawn after the apparent displeasure that was voiced by a South African government official, Tullow has filed for international arbitration in London. The process of international arbitration of tax disputes as in the case of Tullow against GRA can be lengthy and expensive.

However, it will be a process that is certainly anchored in law. In fact, it is within Tullow’s rights to protect its interests in the way it has chosen to go but isn’t there a better way that doesn’t injure Ghana’s investor attractiveness?

Ghanaians should also be concerned about the possible harm that this arbitration could cause to Ghana’s quest to secure its US$3billion bailout from the International Monetary Fund.

The impact of international arbitration to Ghana’s investor image is something we shall all wait to see unfolding but is it a risk worth taking when we are at the door of the IMF seeking for a bailout?

It must be emphasized that there might be a geopolitical twist to this whole misunderstanding considering the influence that multinational firms hold over their governments. In fact, no government will want to see its multinational firm being treated badly in foreign countries which then does not rule out the geopolitical ramifications of the expected prolonged arbitration process on Ghana’s bailout negotiations with the IMF.

For instance, nobody gets an IMF programme without the push or vote of the United States, which is the largest shareholder of the fund. Ghana finds itself in a dire economic situation that requires it to pull some geopolitical strings to fast-track the approval of the bailout programme in an extraordinarily short period of time.

Given this context, any action that posts an unfavourable geopolitical narrative about Ghana could in a way affect how smoothly those strings are pulled for the deal to be approved.

The need for a multi-stakeholder resolution to serve mutual interests

Admittedly, there has been much debate about the fact that the state is not getting the desired tax revenue from its most lucrative sectors, especially the extractives and telecoms, but the GRA’s tax demands from the foreign firms over the past few weeks have left many wondering whether they are legitimate claims or acts of a desperate taxman.

Ideally, if the state tax collector wants to reinterpret and apply the tax laws on big companies to secure the right levels of taxes for the government then it will have to come out clearly to engage these private businesses on the way forward.

There is the need for an inclusive engagement between the GRA, the respective sector ministries—Finance, Energy and Communications, and the affected companies to find a mutually beneficial solution to the back-tax conundrum.

Investment goes to places where there is certainty about rules and regulations, including tax rules, and it is therefore advisable for government and its investment promotion agencies—the Ghana Investment Promotion Centre, the Ghana Free Zones Authority and other who are charged with the business of attracting investment inflows into Ghana should get involved in finding a multi-stakeholder resolution to the ongoing tax disputes.

By: Patrick Paintsil