A receptive tax regime can encourage investment in mining and help protect economies from troubled times and during a recession, countries such as Namibia may be tempted to introduce tax-raising measures to grab a share of wealth. But smart nations are better to encourage mining and associated industries to stimulate economies and build the country’s investment attractiveness at the same time.
Tax grabs that reduce a nation’s investment attractiveness can help kill off exploration projects and hamper the development of side industries that could contribute jobs and skills to the community.
Namibia has been experiencing recession for almost three years but its mining industry has boosted its economy during the downturn, contributing 14% last year to the nation’s gross domestic product of $13.9 billion. Some 16,221 employees were directly employed in Namibia’s mining industry and 6,681 workers were contractors as the sector paid N$2.1 billion ($941.9 million) in royalty payments and N$1.7 billion tax on profits — about 25% of the country’s private sector tax bill.
Last month during the Chamber of Mines of Namibia Mining Expo, Namibian Minister of Mines and Energy Tom Alweendo resisted calls for direct government ownership in mining companies as the government shopped proposed tax changes that have attracted industry concern.
Among the changes were a removal of the tax deductibility of royalties for mining companies not in the diamond mining game and a 650% increase in dimension stone levies for non-diamond sector exports, up from 2% to 15%.
The flagged changes have followed Alweendo’s push for speedier regulatory approvals and more realistic licence terms earlier this year.
The southwest African country’s proposed tax changes are expected to have an unequal effect on the various mining sectors of the country — saving the punitive effects for its non-diamond sector where the government is less of a player.
The government has a direct stake in the diamond mining game with its equal-share joint venture Debmarine, which it owns with Anglo American subsidiary De Beers. Debmarine is investing in infrastructure through a N$7 billion new diamond-mining vessel that will carry out diamond mining on the ocean floor off the Namibian coast. This has the potential to add N$7 billion a year to Namibia’s economy through a 500,000-carat increase in production that will also stimulate the economy through the addition of 60 new jobs.
Mines Minister Alweendo had argued in May the nation should take advantage of resources projects to have infrastructure built and enhance local worker skill sets through education rather than up its stakes in mining companies.
Community pressure for the government buy-in had followed the government’s decision late last year to walk away from its black empowerment policy for 20% black Namibian ownership.
Alweendo noted last month citizens were still concerned with how they shared in the wealth of resources, saying “we need to look at the ownership, value addition and the fact that mining relies on external forces before moving on ways to tap benefits from our mining industry”.
Taxes are an alternative to the ownership buy-ins, but they can be regressive and hamper the investment Alweendo has rightly noted requires dedication and hard work.
Mincom Namibia country manager Hans Callesen is seeing the effects of the nation’s proposed tax changes, saying companies are “holding off investment”.
A loss of mining investment in Namibia would adversely affect all parties and could threaten the 20% of revenues that the industry channels to government along with more than 50% of its profits, according to Chamber of Mines research.
Unequal, punishing tax reforms are not the way forward. Instead, Namibia should acknowledge that encouraging its full mining sector is a way to boost its share of royalties and profits, and help the community and economy share the wider benefits of the country’s rich resources.
- Yolanda Torrisi is Chairperson of The African Mining Network and comments on African mining issues and the growing global interest in the continent. Contact: firstname.lastname@example.org