Input your search keywords and press Enter.

Africa losing millions through poor mining tax laws

As the country looks at ways in which to steer itself back onto the path for economic recovery, five non-governmental organisations have come up with a study which says African countries have been losing millions of dollars because of tax subsidies and concessions to mining companies.
Regional giant, South Africa, may be losing as much as US$359 million a year because of these low royalty rates, the study says.
The study entitled Breaking the curse: How transparent taxation and fair taxes can turn Africa’s mineral wealth into development was published last month by the Southern African Resource Watch of the Open Society Institute of Southern Africa based in Johannesburg, South Africa; the Third World Network Africa based in Accra, Ghana; the Tax Justice Network Africa based in Nairobi, Kenya; Action Aid International in Johannesburg; and Christian Aid in London, the United Kingdom.
The study looked at mining taxation and transparency in seven African countries: the Democratic Republic of Congo, Ghana, Malawi, Sierra Leone, South Africa, Tanzania and Zambia.
The central argument was that African governments had not been able to optimise mining tax revenue due to them before the price boom from 2003 to last year, and they had not been able to capture the windfalls during the boom.
The study argued that this was largely because mining companies operating in Africa were being granted too many tax subsidies and concessions; and there was a high incidence of tax avoidance by mining companies which were protected by secret mining contracts, corporate mergers and acquisitions, and various creative accounting mechanisms. There was also inadequate institutional capacity among the African governments to ensure tax compliance by the companies.
Ghana was losing about US$68 million a year because of the lax tax laws.
Tanzania was slightly worse off, but was losing about US$30 million a year, Malawi US$16.8 million and Sierra Leone US$8 million.
The report did not have a global figure for the Democratic Republic of Congo, one of the worst ravaged countries where citizens have decided to grab the mineral wealth for themselves.
It, however, said the country was losing US$360 000 a year from one mining contract.
The study says two major changes are needed to reverse this “paradox of plenty” where countries with the most natural resources are often the poorest and worst governed.
First, the process of creating tax regimes and mechanisms of tax payment need to become transparent, it says.
Second, African mining tax regimes need to be reformed to ensure that governments are able to collect a fair share of mining rents to fund their national development plans.
The study recommends that African governments must collaborate with the United Nations Economic Commission for Africa to develop and publish an easy to use guide on mining taxation.
The guide should cite best practice and detail the purpose, costs in foregone revenue and benefit of each type of tax instrument and tax concession.
African governments should review their company and financial laws to require all extractive industry companies to use the Extractive Industries Transparency Initiative template in their annual financial reports by law.
This will ensure that privately or state-owned mining companies are required by national law to publish their profits and losses, and remittances to government and other structures. Governments should stop grating tax exemptions to mining companies in contracts. All mining tax rates and terms should be legislated and merely confirmed in mining development agreements.
The study recommends that parliaments should pass laws that require mining development agreements to be ratified by parliament and made public. They should also push for new international accounting standards that would force companies to report their profits, expenditures, taxes, fees and community grants.
Bilateral and multilateral donors should scale up their financial assistance to governments to improve their capacity to monitor and audit the accounts of mining companies and to review their mining tax laws.
Though Zimbabwe was not part of the study, the mineral-rich country has been losing billions through smuggling.
According to its recently released Short Term Emergency Recovery Programme (STERP), the government says a key component of STERP in reviving the mining sector will be to ensure that international commodity prices are levied and received by mining houses.
“In short, the pricing gap in respect of which domestic prices lagged behind international prices is a thing of the past,” it says.
Consistent with this policy, STERP says, no more retention on commodity earnings will be made by any authority in Zimbabwe but the government will review upwardly the taxation and royalty structures in line with international standards.
Previously the central bank retained a percentage of the earnings by mining companies and ended up owing the companies huge sums of money some of which has not been paid up to now.
STERP says there will be greater demand on mining houses to protect the environment. The government will also impose social development obligations on mining houses.