Chamber of Mines urges warning over proposed mineral royalty reforms – Life Pulse Daily

Introduction

Recent discussions in Ghana’s mining sector have placed mineral royalty reforms at the forefront of fiscal policy debates. The Chamber of Mines of Ghana – the industry’s principal representative body – has publicly urged policymakers to proceed with caution before enacting a proposed Legislative Instrument (LI) that would replace the current flat‑rate gold royalty with a sliding‑scale regime. While the Chamber does not oppose the concept of a variable royalty, it warns that the draft parameters could dramatically increase the effective tax burden, diminish competitiveness, and jeopardise investment in a sector that contributes roughly 30 % of Ghana’s export earnings. This article unpacks the Chamber’s position, analyses the proposed fiscal changes, and offers practical guidance for stakeholders seeking a balanced outcome.

Key Points

Background

Ghana’s mining sector has a long history of contributing to national development. Since the introduction of the Mining Act of 2006, the country has refined its fiscal regime to balance state revenue with investor confidence. The current royalty structure – a flat 5 % levy on gold output – was designed to be simple and predictable. In recent years, however, the government has sought to increase non‑oil revenue streams, leading to the creation of the Growth and Sustainability Levy (GSL), a levy that applies to mining companies regardless of profitability.

In 2024, the Ministry of Finance announced plans to replace the flat royalty with a sliding‑scale model that would adjust rates according to gold price thresholds. The draft LI, circulated for stakeholder comment, proposes the following bands:

• Gold price ≤ $1,200/oz – 4 % royalty
• Gold price $1,201–$1,500/oz – 6 % royalty
• Gold price > $1,500/oz – 8 % royalty

These rates would be applied on gross capital rather than on net profit, a distinction that significantly influences the effective tax burden.

Analysis

Fiscal impact of the proposed sliding‑scale royalty

Using a modelled scenario for a mid‑size gold mine, the Chamber projects that the effective tax rate could increase from approximately 51 % under the existing regime to over 60 % in a bullish gold price environment, and approach 70 % during a prolonged price decline. This escalation stems from two converging factors:

1. The higher nominal royalty rates applied at premium price levels.
2. The cumulative effect of the Growth and Sustainability Levy, which is calculated on gross revenues and therefore compounds the overall burden.

Why profit‑based taxes are preferable

Traditional fiscal theory recommends profit‑based taxation for natural resources because it aligns the government’s share with the mine’s actual earnings. When royalties are levied on gross capital, they remain payable even during periods of loss, creating a distortionary effect that can suppress production, delay expansions, and ultimately reduce total fiscal receipts.

International benchmarks and best practices

Comparative analysis shows that jurisdictions with hybrid royalty systems — where payments vary with profit margins — tend to maintain higher levels of foreign direct investment (FDI) in mining. For example, Chile applies a royalty that escalates only when net cash flow exceeds a predetermined threshold, while Peru uses a sliding royalty tied to profit after operating costs. Adopting similar mechanisms could position Ghana as a preferred destination for capital‑intensive exploration projects.

Legal and regulatory implications

While the LI is still in draft form, the Mining Act of 2006 empowers the Minister of Mines to promulgate fiscal instruments that modify royalty structures, provided they are consistent with the Constitution and do not contravene existing bilateral investment treaties. If enacted without adequate stakeholder consultation, the legislation could face legal challenges from mining companies on grounds of unfair discrimination or breach of reasonable expectations. Moreover, any amendment to the royalty regime must be accompanied by clear transitional provisions to avoid retroactive tax liabilities, which are prohibited under Ghanaian tax law.

Practical Advice

For policymakers

• Extend the consultation period to include independent mining analysts, labor unions, and community representatives.
• Consider adopting a profit‑linked royalty that activates only when cash flow exceeds a defined margin.
• Re‑evaluate the Growth and Sustainability Levy to prevent double‑taxation on the same revenue stream.
• Implement a clear, phased implementation schedule that aligns royalty adjustments with gold price volatility cycles.

For mining companies

• Maintain robust financial modelling to forecast the impact of different royalty scenarios on cash flow and project viability.
• Engage early with the Chamber of Mines to submit evidence‑based recommendations on royalty bands and calculation methods.
• Diversify revenue streams through community development funds and skill‑transfer programs that can demonstrate broader socioeconomic benefits.
• Prepare contingency plans for potential tax disputes, including arbitration clauses in investment agreements.

For investors and financiers

• Assess the country risk profile by analysing the stability of the proposed fiscal framework and its alignment with international mining standards.
• Utilise political risk insurance to mitigate exposure to sudden regulatory changes.
• Prioritise projects in jurisdictions with proven transparent royalty calculation mechanisms.

FAQ

Conclusion

In summary, the Chamber of Mines of Ghana raises a critical warning regarding the proposed mineral royalty reforms that aim to replace the current flat royalty with a sliding‑scale system. While the intent to capture greater revenues during favorable gold price cycles is understandable, the draft’s reliance on gross‑capital calculations and its interaction with the Growth and Sustainability Levy risk creating an over‑taxed environment that could deter investment, undermine job creation, and jeopardise long‑term fiscal sustainability. A balanced approach — grounded in profit‑based royalties, transparent stakeholder engagement, and alignment with international best practices — will enable Ghana to optimise state revenue while preserving the sector’s growth trajectory and its vital role in national development.