Petroleum Economist and auditor, Matthew Alorvi,, has asserted that revenue assurance company, SML Ghana Limited, played a crucial role in ensuring that the right amount of taxes was paid by operators of Ghana’s downstream petroleum sector, insisting that contrary to reports that the company’s contract with the Ghana Revenue Authority (GRA) did nothing to improve revenue collection, SML helped improve revenue performance of GRA in the sector.
The experienced Petroleum Economist, who has hands-on experience in the sector, noted that after a thorough analysis of SML’s role in the downstream sector, it is obvious that criticism of the company’s contract with the GRA were borne out of ignorance or a lack of understanding of SML’s work.
“My investigation has shown that SML’s revenue audit and assurance control measures implemented in May 2020 in the petroleum downstream sector, has closed the gap between the NPA traded volumes and the GRA taxable volumes.
The analysis here as shown in figures 1 and 2 clearly show that the assurance implemented by SML had played a pivotal role in performance of taxable volumes and by extension, revenue performance,” Mr. Alorvi noted after explaining how the sector operates.
Following an investigative report by the Fourth Estate that the SML Ghana Limited revenue assurance contract with the GRA did not bring the desired results to the state, President Akufo-Addo suspended the contract and has ordered an audit into the company’s operations.
For Mr. Alorvi, even as the audit goes on, it is important for Ghanaians to answers genuine questions regarding the issue so as to understand the important role played by SML in revenue assurance for the country.
“Before SML, how was the GRA keeping waybills? Why, with the NPA-ERDMS system in place, the GRA were experiencing under-declarations and concurrent OMC monthly indebtedness that led to court cases that remain unresolved?
Before SML, why was the sector experiencing at least one OMC running away with collected tax revenue?
Genuine answers to these critical questions will lead to the realization of the crucial role that SML plays in revenue assurance and collection of taxes due the state,” he observed.
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Tax collection challenges in downstream petroleum sector
The facts SML discussions ignore
UNTIL mid-December last year, Strategic Mobilisation Ghana Limited (SML) was like any ordinary business in the country, judiciously deploying its skills and talents in the concerted effort of nation building.
Except for a few publications, mostly on its numerous corporate social responsibility (CSR) activities, the indigenous business quietly worked with state agencies to account for and guard the state’s interest in refined petroleum products as part of a wider government policy to ensure that every tax revenue in the downstream petroleum sector is duly identified and collected for national development.
Then on December 18, 2023, a news report around aspects of its operations made SML a national topic, triggering whirlwind discussions that have been more emotive, presumptive and political than factual, exhaustive and research-based.
While the audit, directed by the President, Nana Akufo-Addo, continue, it is important to properly examine the issue in a way that forces the discussion back on the path of facts, not assumptions.
This is even more important because as various ‘experts’ fall over each to throw mud at the company, SML and its management have been measured in what they say, partly in deep regard for the due processes that have been rolled out by the government.
The danger with that measured silence though is the deepening of the information gap and the rise of disinformation on an issue so technical as revenue assurance in the downstream petroleum sector.
Experience, not hearsay
Over the past 10 years, my professional journey has led me into the intricate realm of Ghana’s petroleum downstream sector, offering a firsthand experience in a dynamic industry that plays a pivotal role in the nation’s economic landscape.
To help with discussions on the issue, I share my encounters, observations, and insights during my days as auditor and currently as operational manager for one of the biggest bulk oil distribution companies in Ghana.
The sector is running parallel by the National Petroleum Authority (NPA) and the Ghana Revenue Authority (GRA). The NPA regulates and supervises the ordering of products between the OMCs and the BDCs by basically being in charge of compliance. The GRA, on the other hand, plays the role of the tax regulator by ensuring that taxes are billed and collected based on traded data volume received.
- BDCs Products Imported and the Deferred Taxes
Ghana’s petroleum downstream sector is a multifaceted ecosystem, and at its core lie the BDCs, which are responsible for importing, storing, and distributing petroleum products.
This exploration delves into the products imported by BDCs and the intricacies of deferred taxes, shedding light on the financial and regulatory dimensions of this crucial industry.
The deferred tax system allows BDCs to import products and defer the payment of customs duties and taxes until the point of sale, that shifts the tax and other duties responsibility to the Oil Marketing Companies (OMCs), providing financial flexibility for the BDCs.
While deferred taxes offer financial flexibility, effective cash flow management becomes paramount for BDCs to meet their obligations when due, the GRA on the other hand losses tax and duties receivable through the chain of these complexities.
- Depots and Custom Bonding Operations
Ghana’s finished petroleum products imported have their first interactions with the depots, a vital component of its energy infrastructure, involves a complex interplay of processes.
Depots serve as the logistical hubs where bulk quantities of petroleum products are stored before distribution. These facilities play a pivotal role in ensuring a steady and reliable supply chain.
Custom bonding operations add another layer of complexity to the downstream sector. These operations involve the storage of imported petroleum products under a customs bond before they are released into the domestic market.
- NPA Traded Volumes and GRA Taxable Volumes
The interaction between volumes managed by the National Petroleum Authority (NPA) and those subjected to taxation by the Ghana Revenue Authority (GRA) stands as a critical element. My exploration into this dynamic revealed the delicate balance required to ensure both efficient energy management and fiscal responsibility.
The NPA has put up a system required by BDCs and OMCs to trade finished petroleum products by initializing orders to successful released of the actual products from the respective depots. These volumes must wholly be transferred to GRA to ensure the execution of the Special Petroleum Tax Act for revenue mobilization.
Over the years, the GRA has suffered suppression of traded volumes for tax purposes as shown in Figure 1 below.
For more elaborate evidence that challenges the GRA in its quest to fully bill and collect downstream petroleum taxes. Figure 1 depicts the gap between the NPA traded volumes and GRA taxable volumes for the period January 2020 to April 2020. The element ‘DIFFERENCE’ shows the unaccounted-for volumes to the GRA.
Figure 1 – Traded (NPA) and Taxable (GRA) Volumes – Jan to Apr 2020.
- SML Bridging the Gap
My investigation has shown that SML’s revenue audit and assurance control measures implemented in May 2020 in the petroleum downstream sector, has closed the gap between the NPA traded volumes and the GRA taxable volumes. The analysis here as shown in figures 1 and 2 clearly show that the assurance implemented by SML had played a pivotal role in performance of taxable volumes and by extension, revenue performance.
Figure 1 and 2 also show clearly the gap bridging of NPA traded volumes and GRA taxable volumes for the previous loss to gains after the assurance and audit.
Figure 4 – Traded (NPA) and Taxable (GRA) Volumes – May to Oct 2020.
With the above disclosures, which is verifiable with the NPA and the GRA. let well-meaning Ghanaians seek better clarity as to who want SML out of the audit and assurance services they render to the GRA.
While at it, there are key questions that must be asked;
- How many BDCs own OMCs?
- Is the NPA having its own meters, or they rely on depot meters?
- Before SML, what meters was the GRA relying on at the depots?
- Before SML, how was the GRA keeping waybills?
- Why, with the NPA-ERDMS system in place, the GRA were experiencing under-declarations and concurrent OMC monthly indebtedness that led to court cases that remain unresolved?
- Before SML, why was the sector experiencing at least one OMC running away with collected tax revenue?
Genuine answers to these critical questions will lead to the realisation of the crucial role that SML plays in revenue assurance and collection of taxes due the state.
Matthew Alorvi
Alorvi99@gmail.com
