On January 26 2022, MyJoyOnline published a story captioned “Ghana loses over $2billion in taxes to undervaluation of gold exports”.
According to the story, these losses were identified through a research by a consortium including the Institute for Statistical, Social and Economic Research (ISSER).
It is observed that the research, which covered the period 2011 to 2017, does not disclose which sector it focused on – large scale or small scale. This distinction is important because the two have separate tax regimes.
Undervaluation of Gold
Upon a reading of the news story, the press release by the research team and the presentation of the research findings, it is difficult to ascertain the basis for the claim of undervaluation. Undervaluation of a commodity such as gold presupposes that there is a true standard value against which the commodity can be measured.
The standard value of gold is easily verifiable. Within the international market, bodies such as the London Metal Exchange (LME) are reputed indicators of the global market price for gold. It is important to mention that, the prices as set by the LME on a daily basis are for refined gold of 99.99% 24 karats purity. Gold exported from Ghana are unrefined and hence would not attract the same price as set by the LME.
Within the precious minerals industry, it is trite knowledge that gold values are dependent on weight and purity. Hence, a kilo of unrefined gold would not have the same price as a kilo of refined gold.
Similarly, two kilos of 14 karats gold could be less expensive than a kilo of 22 karats gold. Given that gold exported from Ghana are in unrefined doré form with a purity range of about 21 carats to 22.5 karats, without an independent valuation exercise, it will be misleading to say that such gold doré has been undervalued using the prevailing world market price as benchmark.
Valuation of Gold
As earlier indicated, two variables go into the determination of the value of gold – weight and purity. Measuring the weight, which is done with a scale, is quite easy and straightforward. Determining the purity of gold is through a scientific process known as assay.
There are various methods of assay – non-destructive methods such as X-ray Fluorescence (XRF), Specific Gravity or Density, and Ultrasonic Testing and the destructive method which includes the Cupellation (Fire Assay).
Once the weight and purity are identified, a calculation is done using the world market price to ascertain the true estimated value of the gold doré.
From the foregoing therefore, it is deductible that to substantiate a claim of undervaluation, it is important to know the weight and purity of what was exported as well as the then prevailing world market price of gold.
Undervaluation may arise where there is a false declaration of the weight and purity of the gold doré which is being exported. However, the report does not indicate whether there were any such findings of false declarations of weight and purity.
As earlier mentioned the research fails to disclose which sector of the gold mining industry it focused on – small scale or large scale. This is important because the two have distinct tax regimes.
Whereas the large scale sector has a tax regime which includes royalties and corporate tax, the small scale sector presently attracts a withholding tax of 1.5% on gold exports.
PMMC’s mandate as National Assayer
In 2017, President Akufo-Addo directed that government identifies a way to independently verify gold exports in order to ensure that the country is obtaining maximum revenue for this precious mineral resource. Consequently, under the leadership of Hon. Kiston Akomeng Kissi, PMMC Board Chairman and driven by the late Kwadjo Opare-Hammond (may his soul rest in peace), then Managing Director of PMMC, stakeholder engagements begun towards the implementation of this directive.
There were several engagements with the Ghana Chamber of Mines and the Association of Gold Exporters, now Chamber of Bullion Traders for Ghana to agree on modalities for the smooth take-off of the National Assay Program.
Eventually, with the support of the Vice President and the then Sector Minister, in February 2018, PMMC officially commenced operations as the National Assayer with the mandate to assay all gold earmarked for export from Ghana.
The National Assay Laboratory located at the Kotoka International Airport, from where PMMC carries on its operations was set up through the support of the Minerals Commission with funding from the World Bank. The Assay Lab is fitted with three non-destructive assay equipment – an XRF Machine, a Specific Gravity equipment and Ultrasonic Testing device.
PMMC’s mandate as National Assayer covers both the small scale and large scale mining sectors. As National Assayer, PMMC independently verifies the weight and purity of the gold doré being exported in order to ascertain its value. The value as determined by PMMC enables the Ghana Revenue Authority (GRA) to exact the requisite taxes such as the 1.5% withholding tax on the gold doré before export.
For the small scale sector, after the assay analysis by PMMC, the export is managed through the ICUMS systems with close supervision by the Central Bank. Exports are done by duly licensed export companies who are required to repatriate 80% of the proceeds back to Ghana within thirty (30) days.
Failure to show proof of repatriation of export proceeds comes with sanctions such as prevention from doing further exports and upon persistent breach, revocation of export license and possible prosecution.
For the large scale sector, whose tax regime is entirely different from that of the small scale, PMMC has field officers who observe the smelting of gold in their gold rooms. From the gold room, the weight of the bars are recorded and samples taken. The samples are transported via helicopter to the National Assay Lab where PMMC conducts the assay analysis to determine the purity and by extension the values of the gold doré which are to be exported.
This provides an independent verification of the export values thereby providing revenue assurance to government. Periodic reconciliations are carried out between PMMC and the large scale mining companies represented by the Ghana Chamber of Mines.
It is worth mentioning that since the commencement of the Domestic Gold Purchase Programme by the Bank of Ghana in June 2021, PMMC as National Assayer has been providing this essential service to the Central Bank by independently verifying the weight, purity and by extension value of gold supplied for purchase.
Digitalisation of National Assay Laboratory
Since the commencement of the National Assay Programme in 2018, there have been consistent efforts to make improvements so as to ensure maximum efficiency of the programme.
In 2021, again under the leadership of Hon. Kissi, with support from the Sector Minister, Samuel A. Jinapor and driven by the present author, the National Assay Programme was digitalised. Digitalisation now made it possible to generate assay certificates which bore unique security features making it difficult to forge to facilitate the dubious elaborate schemes of gold scammers.
Digitalisation has also now made it possible to monitor in real time, gold exports passing through the National Assay Laboratory. It has also improved collation of timely data on export figures and revenues in order to aid effective national economic planning.
The digitalised National Assay Lab, which will be officially launched this month, will be open and accessible to key stakeholders including the President as the constitutional trustee of Ghana’s mineral resources, the Vice-President as Head of Economic Management Team, the Minister of Lands and Natural Resources, the Minister of Finance, the Governor of the Bank of Ghana, and the Commissioner General of the Ghana Revenue Authority.
PMMC continues to find ways to improve upon the execution of this important mandate which is critical for securing the much-needed revenue from the precious minerals industry for national development.
The writer is the Managing Director, Precious Minerals Marketing Company (PMMC).