The mining industry of Taita Taveta county contributes Shs 12 billion to the national economy each year, but questions arise as to whether the county government is getting its rightful share of taxes from mining.
Gemstone mining makes up the biggest chunk of the mining industry in Taita Taveta. The fact that it is mostly done by small and medium scale miners makes it very difficult for any authority to monitor and collect tax revenue. Good news however is that gemstone miners spend Shs 168 million a year within Taita Taveta county, further boosting economic activity for thousands of businesses. This interesting data is contained in a report published by Pact Global UK, a London-based agency.
Despite the impressive output from mining in Taita Taveta, the county government has not received billions of shillings in royalties collected by the national government. The National Treasury, responding to a question raised by Wundanyi MP Danson Mwashako, said that it is awaiting regulations that would guide it on how to share mining royalties with the county government.
Internally generated revenue is very important to the county government now that the county revenue allocation formula may change. If changes are approved by the Senate, counties such as Taita Taveta county with low population would lose funding from the national government. Royalties from mining operations would therefore make up the shortfall in funding.
Royalties can be described as compensation paid by mining companies for extracting mineral resources. Instead of waiting to get tax from profits made by mining companies (something that may take many years to happen), royalties help governments obtain an early and predictable revenue stream. “Royalties are typically paid as percentage of gross revenues, rather than as a percentage of profit,” explains Mtwalo Msoni, a tax advisor with the Tax Justice Network Africa (TJNA).
Governments however need to balance between collecting revenue from mining and allowing miners to make a profit. “Mining projects require significant upfront investments before revenues begin to flow, and investors should get a return on their investment but benefits to the nation must come first and not be compromised,” says Msoni.
Speaking of putting national interests first, TJNA says most African countries do not benefit from mining because of tax avoidance practices. Tax avoidance occurs when mining companies exploit gaps in tax laws so as to pay as little tax as possible. For example, a mining company may exagerrate expenses in order to “reduce” profit and therefore pay smaller tax. Another form of tax evasion is through “transfer pricing” where a local branch of a foreign company might take a loan from headquarters then send back home all of its earnings as “loan repayment.” Royalties aim at addressing that gap because tax is paid as long as minerals are extracted from the ground.
TJNA is now calling for transparency in the mining sector so that the public gets to know the ownership of mining companies and exactly how much taxes they are paying. TJNA is running a global campaign to ensure that revenues from mining remain in Africa and not sent off to tax haven countries in Europe and the Caribbean.
Mtwalo Msoni makes four recommendations for county and national governments to maximize revenue from mining:
Mining projects create negative environmental and social impacts (disruption of livelihoods) which must eventually be addressed by governments using public funds. This makes it necessary for mining operations to pay their fair share of tax.
Picture: Tsavorite gemstone. Photo by Rob Lavinsky.
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