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Another fight in offing over proposed export levy for Namibian mines

23 july 2012

The Namibian government is considering a new export levy for mines, which will see miners paying up to two percent tax on their income.

The Namibian government was also planning to introduce a surcharge formula as a windfall tax on profits, to push up non-resident shareholders’ tax from the current 10 per cent to a 20 per cent, and to tax the trading of mining licences and management fees paid to non-resident parent companies.

Deputy Finance Minister Calle Schlettwein said the ministry would table the necessary legislation during the next Parliamentary session so that the tax can become effective during the 2013-14 financial year.

Mining plays an important role in Namibia’s economy, accounting for some 60 percent of its export earnings and over 15 percent of its gross national product.

Namibia is one of the world’s largest diamond producers and provides about 10 percent of the world’s uranium.

Other mining products in the country include gold, zinc, copper and lead.

Anglo American and De Beers are among the companies with significant operations in the country.

Non-diamond mines currently pay 37.5 per cent corporate tax on their profits to the government, in addition to royalties and non-resident shareholders’ tax.

Diamond miners to feel more heat

Analysts said the proposed increase in the export levy would affect diamond companies more as they are currently paying 55 per cent corporate tax and 10 percent royalty on sales turnover.

Feeling the tax burden, Namdeb, a joint venture between De Beers and the government of Namibia said last year that it was highly taxed and even asked the Chamber of Mines to lobby Windhoek for a softer tax stance toward diamond mines.

Namdeb continued with its battle for tax relief this year when it said that the government should reduce tax on projects that do not meet certain profit thresholds of the company.

With the latest development, chances were slim like a pencil that the Namibian government would revise tax on Namdeb operations.

Doing so would be suicidal as similar calls from other mining operations in the country will reach a crescendo.

The country’s seven biggest mines paid N$1.9 billion ($230 million) two years ago in taxes, royalties and dividends to the government.

This figure would rather be seen going up than taking a nosedive, as the Namibian government seeks more funds to meet its growing expenditure.

Not the first time

Windhoek was last year forced to rescind or reduce most of the increased tax proposals it had threatened to impose on the country’s mining sector, with the objective of gaining more revenue.

The original proposals had raised alarm in the mining sector as they would have reduced profitability in the country.

The proposal to cancel the current exemption from 15 percent value added tax for raw material exports from Namibia was postponed, while export duty on raw materials was reduced from 5 percent to between zero and 2 percent.

The latter remained as an element in the tax code, but levied on different minerals depending on their particular circumstances.

In addition, the government also rescinded its intention to increase the corporate income tax rate for non-diamond mining companies from 37.5 percent to 44 percent.

Mining companies were asked to pay a ‘windfall’ tax surcharge when their profits reach above an, unspecified, level.

‘Honeymoon’ short-lived

However, the tax relief appeared to be just ephemeral, as the Finance ministry had knocked again at the doors of the chamber of mines.

It had been given two weeks to respond to the proposed changes.

The chamber’s general manager Veston Malango was not happy as he told The Namibian newspaper that if the government’s proposal was implemented, it would have “serious implications” on existing mines and planned projects in Namibia.

He said the industry fully supported the government’s drive to stimulate value addition in the country, which was the rationale behind the export levy on raw materials.

“There seems to be a misunderstanding between Government and the industry on what value addition entails,” he said.

“Rather than penalising mines by introducing the export levy, Government should rather push Namibia’s comparative advances and lure big companies and skills to the country which are in the business of adding value to metals.”

A study done by a local economist Robin Sherbourne on behalf of the chamber showed that there was split of revenue to the government, with a small proportion going to shareholders.

He said the split of all mining profits was 88 percent to the government and 12 percent to shareholders over the past 10 years.

“Namibia’s effective taxation rate prior to the announcements was already punitive and beyond the tipping point in the opinion of many international consultants,” he said.

What the chamber of mines will tell the government was predictable.

It will say anything that makes them pay more than what is being already paid will push several miners out of business.

Whether the Namibian government would accept this line of argument remains to be seen, as it feels that mining companies should share the cake evenly.

Mathew Nyaungwa, Editor in Chief of the African Bureau, Rough&Polished