Curbing petroleum tax evasion


The COVID-19 pandemic has negatively impacted on the tax revenue of the state in the past year 2020 and continues to rake the same havoc. It is therefore not surprising that in the 2021 budget and fiscal policy of the Government of Ghana several taxes have been introduced to narrow the fiscal deficit gap.

It is for this reason that one would wonder why the players, including regulators in the downstream petroleum industry in Ghana, would continue to issue reports that huge revenues are lost to the state and we all turn “blind-eyes” to it. In this piece, I am proposing that all the filling stations and bulk consuming points in this country should be made mini bonded warehouses (stage two, with the depots as stage one).

Inelastic Demand for Petroleum Products

From Economics point of view, any product with price inelastic is easy to rake in revenue if taxes are imposed on them. The ability of the consumer to decrease the patronage of the product is limited as substitutes are not perfect or unavailable, among other factors. This explains why governments across the world would not hesitate to impose taxes and raise revenue for the state. It is efficient and easy to administer. Ghana rakes about 12% of its tax revenue from taxes on petroleum products and this means that every effort should be made to guard these “hanging fruits” in tax administration from slipping through the hands of tax administrators.

Petroleum Tax Revenue loss

There have been several reports from the downstream petroleum industry in Ghana about revenue losses to the state over the years. These were attributed to smuggling, under-declaration of sales, dumping of products meant for export that were diverted into the local market (products for re-export into neighbouring West African countries do not attract local taxes).

Ken Ofori-Atta

In its recent industry report for the fiscal year 2019 launched on 2nd March 2021, a hooping GHC1.4billion is reported to have been lost to the state (taxes and regulatory margins) through 855million litres of petroleum products not accounted for (page 174). With this report, one expects those who are charged to ensure that the tax revenue for the state are protected, accounted for, collected, and paid into the consolidated account of the republic of Ghana to act swiftly on this.

This piece is in response to the call by Mrs. Appiah Owusu, the Chairperson of CBOD, who, in her opening remarks at the launching of the 2019 Petroleum Industry Report, stated that “As we delve into the report when we get our hands on our own copies, I will urge each and every one of us to focus on finding practical, bold, innovative and lasting solutions to the most pressing issues facing this industry”

The ‘2019 Petroleum Industry Report’ attributes the revenue loss to “unaccounted stocks” based on their estimated sales of petroleum products and the actual reported sales from the official records of the National Petroleum Authority (NPA). The report further traced the possible causes of the “unaccounted stocks” to either production, imports, or exports of petroleum products that gets onto the market without declaring them for tax to be paid on it.


A similar statement is made on paragraph 264, (page 60) as read by the Hon. Osei Kyei Mensah Bonsu on the floor of parliament as “A study of the downstream petroleum sector indicates there is still the challenge of under-reporting and evasion of taxes by some industry players. The GRA in conjunction with the relevant agencies will mount a campaign to deal with these unlawful acts.” This clearly shows that the tax evasion is not just a year or two ago. Incidentally, in the 2021 budget, on page 57, the grants expected for the year is also GHC1.465billion. this amount is equal to the Industry reported tax revenue loss for the year 2019.

Proposed solution(s)

It is clear that solutions to this problem must engage the attention of all Ghanaians, especially those directly charged to protect the public purse, not just what goes out of the purse but also what is supposed to come into the purse. Some efforts have been made but the recent industry report clearly shows that solutions proffered and implemented have not yielded the desired results. It is clear that the problem is being tackled probably from the wrong angles and obviously the national saboteurs continue to have a field day.

Fuel sold at filling stations only

In Ghana, no one is allowed to sell fuel (gasoil or gasoline) in any container apart from a dispenser in a filing station, apart from the bulk consumers like the mines and some corporate and state institutions, who can easily be identified and monitored in the same manner as described below. The source of supply of every drop of fuel to the underground tanks of all filling stations (about 4,055 stations, according to the NPA) should be a matter of serious national interest as far as tax revenue is concerned. Without any customs officer, no filling station should be allowed to discharge fuel into their underground tanks. Revenue Locks should be put on all the underground tanks as well and their opening and closing should be under the supervision of the GRA and National security officials.

The filling stations should be treated as mini bonded warehouses with GRA-Customs officers’ presence and looking at the figures. It will be cost effective if you compared the staff cost and the revenue the state could raise. If GRA sits down for them to submit returns to the GRA on monthly basis, I doubt if they will include those that they got from “illegal” sources, if any.

‘Fake’ Export sales and tax evasion

This type of tax revenue leakages refers to the situations where people claim to export the products to neighbouring countries such as Togo, Burkina Faso, and Mali and divert them onto the Ghanaian local market. When the products are meant for export, local taxes are waived.
In this way, when the supposed exports are “dumped” onto the local market, the national saboteurs benefit from all the tax exemptions, thereby depriving the state of the needed revenue to complete the primary school in my village, Sreso Tinpom and other places.
The others could be when they buy from pirates or stolen oil that come to the shores as apprehended by the Navy and NPA in Kpone a few years ago.

Taxes and levies are paid at filling stations level

Over the years, we have forgotten about the key spot, the filing stations, in the tax value chain.
From taxation point of view and in my view (I stand to be corrected), the petroleum products in the filling stations are still bonded products until the products are sold by the oil marketing companies and the tax remitted to the state.
Any attempt to discount this position (despite the current practice where OMCs are made liable for the tax component in the products they lift from the depots) will lead to the usual lamenting of tax revenue loss to the state.

Tax law applies to legal and illegal fuel

GRA-Customs Division should look at this critically because in taxation, the income from illegal business is still subject to tax. I am not talking about periodic inspection by NPA or any state body but daily monitoring and recording and submission of the quantities to be reconciled with what they claim to have loaded from any depot in the country.

This is likely to expose them if they got the product from other sources than a designated custom bonded depot.The begging question is; from the point of view of tax collector, does it matter more where a particular OMC got its products to sell at a filling station than the taxes that are due the state? People should not get me wrong that I support lifting from any source. What I mean is that once an OMC gets a product into the station for sale, GRA-Customs should know and demand the tax and continue to find out where the product was loaded from, the waybill, the original intended destination as recorded in the depot.

If the OMC is not able to proof the depot from which the product was loaded, the punitive sanctions are meted out without fear of favour. In that way, the state will get all the tax revenue on all petroleum products sold in the country and get the needed information to prosecute perpetrators of such crimes against the state.

Controls at depots

It is very important that controls are tightened at the depots where the products are lifted for the filling stations. Indeed, in recent times controls such as Electronic stock monitoring and loading platform called ERDMS, product marking, electronic sealing, cargo tracking, Remote sensors, using ultrasound system to monitor stock movement, presence of National security officials, BNI officials, GRA-Customs officials, among others are all in place at the depots. The question is why is the problem still happening? Are there other avenues that petroleum products can get to the filling stations for sale? If so why leave that channel uncontrolled for revenue leakage to the state? It is possible we are hitting the wrong target.

Cost of collection will still be efficient

When a suggestion like this is brought to bear, the tax administrators tend to be quick to hide under cost of collection above 3% of the revenue and device means of discounting such suggestions. Ninety seven percent (97%) of GHC1.4billion is 1.358billion and it could do a lot for the education or road sectors.
There are a lot of unemployed graduate youth and they could easily be engaged and trained to do this to save the nation from daily leakage of tax revenue because the measures in place are not effective.
Certain portions of cost of tax collection should be seen as investment with positive outturn in the short to medium term. About 9,000 NABCO members could be trained to do this with the supervision of experienced customs officers.

The Commissioner General, in conjunction with the NPA Management should critically consider making the filling stations mini bonded warehouses as the taxes on the products continue to be tagged until the product is sold to the final consumer. It will also help to curtail situations where all products sold, irrespective of the source of supply, would be accounted for as far as taxes are concerned.

The Ghana Beyond Aid Agenda could be enhanced when we mobilize all the resources we can generate locally.

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(The author is a member of the ICA and the Chartered Institute of Taxation, Ghana)


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