On 25^th November 2022, the Reuters online news portal reported a news item on the government of Ghana’s policy to use gold in exchange for oil. The report is quoted as saying:

“Ghana’s government is planning a new policy whereby gold rather than U.S. dollar reserves will be used to buy oil products. The move is meant to tackle dwindling foreign currency reserves coupled with demand for dollars by oil importers, which is weakening the local cedi and increasing living costs.”

The report therefore quoted the Vice President of the Republic as saying:

“Ghana has ordered all large-scale mining companies to sell 20% of their entire stock of refined gold at their refineries to the Bank of Ghana from Jan. 1, 2023,” Vice-President Mahamudu Bawumia said on Facebook on Friday.

Given that this policy is expected to take-off on January 1, 2023, there is a need to look at the crystal ball to see if there are any hidden tax issues that require attention. As said by Oliver Wendell Holmes, Jnr in 1927, during his dissenting opinion in the court case of Compania General de Tabacos v. Collector, 275 U.S. 87 (1927): “Taxes are what we pay for a civilised society”.  Based on Holmes statement, this author will add that taxes are what we pay to buy civilisation, peace and prosperity.

The following tax types may require attention from government in its pursuit to implement the policies. These are VAT, Withholding Tax, Company Income Tax and Export duty. For the purpose of this article, the author focuses specifically on the implications of VAT on this policy. The author’s understanding of the policy, as quoted by Reuters, is that the large-scale mining companies will sell at least 20% of their entire stock to the Bank of Ghana.

Literature-review from the National Petroleum Authority in Ghana suggests that the Bank of Ghana and Precious Minerals Marketing Company (PMMC) are directed to coordinate the policy of government. In that case, it is anticipated that either the Bank of Ghana or PMMC may play an active role in this policy direction. If this is the case, then the large-scale mining companies are sellers of the gold on the one part, and the Bank of Ghana is buyer of the gold on the other part.

1.2 The scope of VAT and its implication on the ‘Gold for Oil Policy’

It is important to direct our minds to the extent that VAT applies to this policy.  VAT is applicable to all taxable activities in Ghana. This is provided for in section 1 of the VAT Act.

Section 1 of the VAT Act provides that:

“There is imposed by this Act a tax to be known as the value added tax, which is to be charged on the supply of goods or services made in the country other than exempt goods or services; and import of goods or import of services other than exempt import.”

It further states in section 1(2) that:

“Unless otherwise provided in this Act, the tax is charged on the supply of goods or services where the supply is a taxable supply; and made by a taxable person in the course of the taxable activity of that person.”

The question is whether gold is considered as a supply of goods that is liable for taxes under the VAT Act. In this case, reference is made to what constitutes supply under section 20 of the VAT Act. In section 20, the Act provides that:

“Except as otherwise provided in this Act and the Regulations, ‘supply of goods’ means an arrangement under which the owner of goods parts with possession of the goods by way of sale, barter, lease, transfer, exchange, gift or similar disposition; and ‘supply of services’ means a supply which is not a supply of goods or money, and in the nature of (i)    the performance of services for another person; (ii)          the making available of a facility or advantage; or (iii)  tolerating a situation or refraining from doing an activity. (2)            For purposes of subsection (1) (a), ‘supply of goods’ does not include the supply of money.”

Section 33 of the VAT Act explains what constitutes taxable supply. It states: “Except as otherwise provided in this Act or Regulations, a taxable supply is a supply of goods or services made by a taxable person for consideration, other than an exempt supply, in the course of or as part of taxable activity carried on by that taxable person”.

Moreover, section 35 of the Act explains what constitutes ‘exempt supply’. It states that exempt supply is a supply of goods and services specified in the First Schedule as an exempt supply and not subject to the tax. A supply of goods or services is not an exempt supply if that supply is subject to tax at the rate of zero percent under section 36 of the VAT Act.

Another issue is whether or not the ‘Gold for Oil Policy’ constitutes a taxable activity in Ghana. Supply of goods is covered by the VAT Act when the taxable activity or part of the taxable activity that gives rise to the supply occurs in Ghana; or the place of supply is in Ghana and the person who makes the supply is registrable under the Act.

Taxable activity in this case means an activity that is carried on by a person in the country, or partly in the country,whether or not for a pecuniary profit; and involves or is intended to involve, in whole or in part, the supply of goods or services to another person for consideration.

The nature of the transaction under the policy requires that the gold is supplied at the point of the refinery.  This means that the gold is mined from Ghana, processed from Ghana, then transported or shipped to the refinery outside Ghana.

Source: citinewsroom.com

The views expressed in this article are the author’s own and do not necessarily reflect The Chronicle’s stance.