Mining companies with operations in the country were thrilled by the news that government has decided against implementing the proposed 17% tax increase. Calle Schletweinn, deputy minister of finance, announced on Wednesday that government will not increase the disputed tax rate from 37.5% to 44%.
?€œThe proposed 44% Corporate Income Tax (CIT) for the non-diamond mining sector is done away with. Instead, the current rate of 37.5% to operate in conjunction with a formula-based surcharge to capture additional mining revenue during better economic periods is proposed,?€Schlettwein said at a media briefing.
During an interview with the Economist, Greg Cochran, managing director of Deep Yellow, said that a period of constructive engagement ensued which allowed the mining industry - represented by the Chamber of Mines - to present independent analysis on its contribution to the Namibian economy and Namibia?€™s competitive position with regard to the current and proposed mining tax regime. ?€œFrom that analysis it became clear that Namibia currently has amongst the highest effective mining tax rates in Africa and that some of the mooted changes had the potential to have unintended negative consequences on the industry,?€ Cochran said.
He said the government considered it appropriate to reconsider the proposed measures and also made a commitment to continue with dialogue between itself and the mining industry.
According to Cochran, the crucial role that the Chamber of Mines played in these negotiations over the past three weeks and the positive manner in which the government participated in the process should be commended.
?€œThe speed at which a resolution was reached and the assurance of on-going consultation is testimony to the commitment of all stakeholders to the future of mining in Namibia. This will ensure that the mining industry will continue to make an important growing contribution to Namibia?€™s economy by providing investment, employment, skills development and revenue to the fiscus,?€ he said.
Philip Ellis, managing director of Gecko Namibia, said government, acting through Cabinet, has once again proven that they are responsible and have the interest of the Namibian people and the economy at heart.
?€œThe policy of government to derive benefit for Namibia and its people by devising mechanisms that would motivate especially foreign mining companies to do downstream value addition is sound and has a proliferation of benefits for Namibia, without compromising on the producer?€™s profits. Unfortunately this policy can not be universally applied because uranium for example has very little opportunity for downstream value addition for reasons which are not within the control of the Namibian uranium producers. This should however not deter government to pursue their policy in respect of other minerals, most of which can be substantially refined prior to export,?€ Ellis said.
According to Ellis, the government could effectively encourage domestic value addition by imposing incentives to ensure upstream procurement from the Namibian entities. These would include the procurement of reagents which Gecko intends producing locally as well as drilling, mining and other services from truly Namibian entities.
He added that it will always be difficult to balance the interest of the government and those that own Namibia?€™s minerals with that of the mining companies who are prepared to take the risk of investing large amounts of money in exploration but sometimes with limited success. ?€œEven when successful, the returns on investment are long term and requires exceptional resources, which in the case of listed companies are further subject to market forces and sentiment,?€ Ellis said.
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