You Must Be Kidding

You like your car right?  Your cell phone?  Your TV and all the rest you’re using everyday.  And probably you think you’re already paying too much for these things already.

Well the money you’re paying certainly doesn’t go to the countries and the people where the base products are extracted from.

According to a certain number for organizations, including ActionAid, Christian Aid, Oxfam America, Third World Network Africa, Tax Justice Network Africa, Southern Africa Resource Watch, mining companies operating in Africa (and I’m sure it’s the same all over the world) are not paying taxes as they should.

Here are a few country snapshots they provided us:

The report looks at mining taxation and transparency in seven African countries: Ghana, Tanzania, Sierra Leone, Zambia, Malawi, South Africa and DRC.  The picture that emerges is one in which African governments are deprived of many millions of dollars, partly as a result of royalty rates that were set too low in tax laws, or exemptions from royalties negotiated  by mining companies in secret mining contracts.

In Ghana, where gold accounts for 90 per cent of exports, the Minerals and Mining Act of 2006 charges royalties on a sliding scale of 3-6 per cent of gross sales value, replacing a 1986 Act which set a top royalty rate of 12 per cent. In reality, no company has ever paid more than 3 per cent in royalties because of tax allowances and lack of expertise in the revenue collection authority. Between 1990 and 2007, this cost the country US$1.163bn (if royalties had been paid at 12 per cent) and US$387.74m (if royalties were paid at 6 per cent).

In South Africa, the government has been drafting a new Royalties Bill for the past five years. The original draft proposed a royalty on company turnover of 8 per cent for diamonds, and 2.25 per cent for gold. The Bill, which has now reached the fourth draft, after pressure from mining companies, proposes royalty rates of 3.7 per cent and 2.1 per cent respectively, meaning the government will forego up to an estimated US$499m a year in lost revenue.

In Tanzania, no mining company, other than AngloGold Ashanti, had paid corporate income tax by the end of 2008 – ten years after industrial mining began in the country. AngloGold Ashanti paid US$1m in 2007. Between 2002 and 2006, mining companies exported around US$2.9bn of gold. During that time, the government earned around US$17.4m in royalties, charged at 3 per cent of the market value minus transport and transaction costs.  If royalties were charged at 5 per cent as has now been recommended by a presidential commission, the government revenue would have increased US$145m over five years.

In Zambia, the two largest mining companies managed to negotiate royalty rates of 0.6%, the lowest in Africa after copper mines were negotiated in the late 1990’s.  Historical comparison puts the foregone revenue into perspective. In 1992, international copper prices averaged around US$2, 280 a tonne and Zambian copper mines produced around 400,000 tonnes of copper.  Revenue earned from taxes and other remittances was US$200m. In 2004, copper prices averaged US$2.868 a tonne, and the country again produced 400,000 tonnes. However, this time around, Zambia earned only around US$8m from the copper mining industry.

In Malawi, the government recently acquired a 15 per cent share in Paladin Africa Ltd, which is to open the country’s first large scale industrial mine, a uranium project. In return for the stake, it gave Paladin a 2.5 per cent reduction in corporate income tax, and reduced royalty rates from the 10 per cent stipulated in law to 1.5 per cent for the first three years, and 3 per cent thereafter. The report estimates that even with its 15 per cent stake, the government will forego revenues of up to US$124.5m in the mine’s anticipated eleven year life span.

In Sierra Leone, an internal government review estimates that revenue losses from tax concessions granted to Sierra Rutile, the second largest mineral exporter in the country (rutile – or titanium oxide when finely powdered is a brilliant white pigment used in paints, plastics, papers and foods) will amount to US$98m between 2004 and 2016.

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Tags: Act, Africa, Bill, company, country, dirty money, DRC, example, Ghana, government, Justice Network, Malawi, mining, money, Paladin, report, revenue, royalty, Sierra Leone, Sierra Rutile, South Africa, Southern Africa, Tanzania, Tax, US, world, year, Zambia

This entry was posted by Francois on Monday, March 30th, 2009 at 11:03 am and is filed under Case studies. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.