Ghana Loses Almost GhC2.8bn In Evaded Tax On Fuel From 2015-2018

…CBOD

The Chamber of Bulk Oil Distributors today launched its industry report for 2018 and the highlights include staggering tax losses to the state due to fuel smuggling and tax evasion.

According to the report, evaded taxes on petroleum products, together with evaded regulatory margins between 2015 and 2018 amounts to a whopping GHS2,790.59million.

“For the period 2015 to 2018, total taxes evaded based on official unaccounted stocks stands at GHc1,390.73mn while total under-reported taxes based on official accounted sale volume after adjustments for exemptions stands at GHc1,168.33mn. This implies that the country has lost a total of GHc2,559.06mn in taxes for the period 2015 to 2018 when the petroleum tax regime was materially varied upwards, first with the SPT in December 20 14 and the ESLA in December 2015. Combined with the evaded regulatory margin of GHc231.53mn, a total of GHc2,790.59mn has been lost to the nation in taxes and regulatory margins for the period 2015 to 2018,” the report concluded.

In the details of the losses, the report notes, is under reporting of taxes to the tune of Ghc433.75million in 2018 alone. The report also shows that from 2015 to 2017 981.15million litres of fuel could not be accounted for, suggesting it was stolen.

In 2018, the suspected losses due to theft reduced because the Government had put in place stringent measures to ensure that the unaccounted petroleum product losses were checked. However, the losses appeared in another form – under reporting of taxes to the tune of GHS433.75mn.

A reconciliation of official national stocks movement data revealed that 43.29mn litres, 156.23mn litres and 781.63mn litres could not be accounted for in 2015, 2016 and 2017 respectively, according to the CBOD report. The cumulative associated petroleum tax revenue evasion to these stocks stands at GhC1,390.73mn while the associated evaded regulatory margins amount to GhC231.53mn.

“In 2018, no loss related to unaccounted stocks is estimated as it was revealed that 574.25mn litres more than the official stocks saleable in the country were sold. This indicates that smuggled stocks in the monitored depots must have been trapped as a result of the NPA’s regulatory interventions to curb the illicit trade of petroleum products and forced to be sold through official channels. This nonetheless did not eliminate the under reporting of taxes on official sales by GHS433.75mn in 2018 after adjusting for tax exemptions and waivers.”

The report also highlighted a major discrepancy in the state that the Mahama Government claimed to have left the Bulk Oil Storage and Transport Company (BOST) and what the Akufo-Addo Government has posted about the same BOST. According to the report, while the Mahama Government had reported at the time of leaving office that it had returned BOST to profitability, the Akufo-Addo government has claimed that BOST had been left in a state of loss and borrowed more money to support BOST’s operations.

“Upon the assumption of office of the current government in 2017, the reconstituted Board and management identified BOST as being unsustainably burdened with losses and compounding debt. Management filed a request with the Presidency for financial assistance to help turn BOST around. These findings were at variance with reports by the previous BOST management which publicly reported that BOST had been turned around to profitability,” the report noted.

President Akufo-Addo, on the basis of the un-profitability of BOST, after the investigations constituted a committee comprising representatives from the Ministry of Energy, GNPC, NPA, BOST and Goil to review the financial position of BOST and recommend a way forward for navigating the financial challenges as well as define the future role of BOST.

According to the report, it was established that the overall debt position of BOST was about USD423mn (net of recoverable receivables) as at November 2017. “This includes trading losses of about USD138mn from BOST’s trading activities in 2015 and 2016 despite benefiting from Government’s subsidies through the price stabilisation and recovery levy as well as preferential forex rates granted BOST by the Bank of Ghana. Other components of the debt resulted from poor management decisions and debt management practices.

“The recommendations for addressing the financial challenges of BOST include the ringfencing of about USD129mn of the debt by the Ministry of Finance and a bailout refinancing of USD210mn from GNPC (USD160mn) and the NPA (USD50mn). Of this, GNPC has released USD100mn while the NPA has released USD20mn. It is unclear how and when BOST will repay GNPC and the NPA. It must be noted that BOST accrues about GHS120mn per annum from the BOST margin (a mandatory charge on regular PMS and AGO sales by all OMCs) for no services rendered. It also charges additional commercial rates for all its services which accrues it extra income.”

The CBOD report however pointed out that the bailout granted BOST by the NPA brings into question the policy framework for the NPA to fund bailouts for petroleum service providers (PSPs), especially when the NPA is mainly funded by the fees and charges from PSPs. “The bail out of BOST opens a case for other PSPs to expect to be bailed out by the regulator in times of crisis. It is imperative that a policy framework is put in place so as not to abuse the precedence of a BOST bail out by a regulator.”

The report said contrary to expectation that the liberalization of the petroleum sector will lead to profits to Bulk Distribution companies, the opposite is the reality, as over competition threatens to push many BDCs out of business.