UPDATE 2-Ghana puts plans for mining windfall tax on hold

Fri Jan 24, 2014 7:18am EST

* Mining firms put govt under pressure over tax-President

* Tax was part of measures to help reduce budget deficit

* Chamber of Mines sees room for tax once profits return (Writes through with details, background)

By Kwasi Kpodo

ACCRA, Jan 24 (Reuters) - Ghana has put on hold plans to introduce a windfall tax on mining profits, Finance Minister Seth Terkper told Reuters, a move that will delight struggling gold firms but could undermine efforts to reduce the country's budget deficit.

Ghana is Africa's second-biggest gold producer and the precious metal is a large source of revenues for the country whose government is seeking to maintain rapid economic growth while reining in the deficit and inflation.

But the decision comes after President John Mahama said this week his country had come under pressure from the industry over the planned tax, with companies warning it would lead to job cuts due to a steep fall in gold prices.

"It's on hold in parliament and we are consulting," Terkper told Reuters late on Thursday.

Terkper had told parliament during the annual budget in November that the government would impose the tax, which it has been trying to push through since 2012. No timeframe was given at the time.

Ghana is viewed as one of Africa's most dynamic countries because its stable democracy is coupled with robust economic growth led by exports of gold, oil and cocoa.

However, the planned tax highlights tensions between an industry feeling the pinch from a 28 percent fall in gold prices last year and a government facing pressure over a range of economic indicators.

These include inflation, which hit a fresh three-year high of 13.5 percent in December, and a budget deficit provisionally expected to land at 10.2 percent for 2013 as well as a weakening currency.

Analysts said pressure intensified this week because of an announcement that GDP growth in the third quarter of 2013 slowed sharply to 0.3 percent.

The slowdown is partly due to the mining slump and a reduction in oil output but it could also be because consumers are being squeezed by government efforts to rein in the deficit through measures such as cuts to utility and fuel subsidies.

"They (mining firms) won't allow us to implement the windfall tax in our country," President John Mahama said at the World Economic Forum in Davos on Wednesday.

"They threatened to lay off workers if we implement the windfall tax and because you needed jobs and you don't want workers laid off then you are coerced to go along," he said.

The gold price fall has affected miners across West Africa and already led to job losses.

It has deepened problems at AngloGold Ashanti's Obuasi mine, which is a flagship for a country once called the Gold Coast. The company plans to lay off 400 workers and mechanise operations to make the mine profitable again.

The Ghana Chamber of Mines led talks with the government on behalf of companies that include AngloGold Ashanti, Newmont and Goldfields, industry executives said.

Toni Aubynn, chief executive of the Chamber, said the government's decision to delay implementation was prudent given market conditions.

"Our argument has been the timing and we believe the government has taken the right decision to prevent further losses of jobs," Aubynn told Reuters, adding that the tax could be reintroduced later if the situation improved.

"I don't think that is the final death of windfall profit tax. If companies are making windfall profit it's only fair that they share that with stakeholders," Aubynn added. (Writing by Matthew Mpoke Bigg; Editing by David Lewis and Mark Potter)