Dozens of miners guilty of Namibian tax evasion - report
Published by MAC on 2019-04-28Source: The Namibian
Just one mining company, operating in Namibia. paid the vast majority of corporate tax owed to government in 2017.
The thirty odd other outfits paid virtually nothing at all.
That's the grim conclusion made by the country's leading newspaper, which also accuses the authorities themselves of "snoozing on the job."
Mines on tax honeymoon
by Lazarus Amukeshe
The Namibian
26 April 2O19
MORE than 30 mining companies which earned about N$85 billion from selling
Namibian minerals paid only N$1 billion in corporate tax between 2012 and
2017.
However, Namdeb Holdings, the joint venture between the government and De
Beers, alone pumped more than N$10 billion into state coffers from its
N$61 billion income over the same period.
Namdeb, therefore, paid about 95% of the N$11 billion corporate tax paid
by all mining companies which had a combined revenue of N$146 billion over
the five-year period.
The Namibian got these details during a three-month investigation of the
contribution made by various mines to the government's tax base, using
data from the Chamber of Mines of Namibia, national budget documents,
mining companies' annual reports, as well as interviews with experts in
the extractive field.
The figures paint a picture of a government that heavily relies on one
company to fund a highly indebted treasury, while other mining entities
rake in billions, but pay little or no corporate tax at all – something
that the tax office claims it's aware of.
The Namibian government relies on income and profit taxes for revenue.
This year's national budget documents show that these taxes make up about
40% (N$21 billion) of the government's total income.
As of 2019, Namibia had 34 eligible taxpaying mining entities.
Mining is Namibia's primary economic sector, and accounts for more than
50% of all exports every year.
The country is home to mining companies such as De Beers, Glencore, Rio
Tinto, B2Gold, Paladin Energy, Vedanta Resources, Areva Resources, Dundee
Precious Metals, China General Nuclear Power and Weatherly International.
Among the critical minerals are uranium, zinc, gold and diamonds.
Namibians own less than 10% in most mining entities, with the state-owned
mining company Epangelo Mining holding minimal shares in mines around the
country, including a 10% stake in Swakop Uranium's Husab mine.
While some companies claim they are not profitable to pay corporate tax,
others such as Dundee Precious Metals at Tsumeb do not pay tax because it
was accorded export processing zone status which exempts it from paying
corporate, indirect taxes and other levies.
Dundee's income between 2013 and 2017 was around N$6,8 billion.
Chinese state-owned Swakop Uranium, which runs the Husab mine, declined to
provide The Namibian with information on taxes. There is no indication
what sort of taxes they paid, if any.
SNOOZING TAXMAN
The global pressure group, Tax Justice Network, said bankers, lawyers and
major accounting firms help companies avoid paying taxes which could be
used for development projects in developing nations.
These major accounting firms also advise the government on how to deal
with tax dodgers.
The Namibian reported last year that Paladin Energy, owners of Langer
Heinrich mine, bought an old company in Mauritius, and used it to avoid a
N$219 million tax bill in Namibia in 2014. The company denied any
wrongdoing, but the finance ministry announced last year after the story
was published that it was investigating the matter.
Nadine du Preez, director of Namibia's large taxpayers' office and
investigations at the finance ministry, said they are aware of only one
company paying a more significant chunk, and said mines pay other taxes
such as VAT and withholding taxes.
However, with many of the mining companies with subsidiaries in countries
which Namibia has tax treaties with, experts suspect that these companies
did not pay withholding taxes because most of the treaties Namibia has,
give taxing rights to other countries where capital and services come
from.
Du Preez stated that some mining companies used schemes that reduce their
taxable income.
Her office has started transfer pricing audits to determine if arm's
length principles were applied between inter-company dealings, and to curb
tax avoidance generally.
However, she declined to explain the action taken on tax abusers.
There are no rules on how long back the taxman can demand answers on tax
avoiders, even if companies go free and exploit tax loopholes.
Earlier this year, tax authorities in Australia tried to recover tax
avoided by mining company BHP Billiton in the 1960s.
DEFENDER
Mining companies in Namibia pay corporate tax at a much higher rate than
non-mining entities.
Diamond companies are subject to an effective 55% corporate tax rate,
while non-diamond mining companies pay 37,5%.
Key mining spending such as exploration expenses and royalties are
tax-deductible, and assets are written off over three years.
Information from the Chamber of Mines shows that exploration expenditure
from 2012 to 2017 stood at about N$3 billion, which tax officials claim
contributed to tax losses.
Chamber of Mines' chief executive officer Veston Malango told The Namibian
this year that mining requires huge capital investments, forcing companies
to make losses.
“Namdeb is taxed at a higher rate, even royalties are at 10%, which could
be why they are the highest contributor. We are, however, not saying that
mines are carrying tax losses solely because of huge capital investments,
but it has an effect,” Malango said.
Statistics from the chamber show that for the past six years, capital
investments stood at about N$38 billion, which are mostly private
sector-sourced through debt and equity instruments, with the Chinese
government backing mining operations in which they have interests.
Exports to China have increased drastically over recent years, with 2018
recording a N$5,5 billion uranium export, albeit mines running on tax
losses.
Malango dismissed speculation that mines in Namibia export raw minerals,
saying it only happens when mines start operating, but as years go by,
they had started adding value.
HOTBED
Namibia was listed as a non-cooperative tax jurisdiction by the European
Union in 2017 for creating an environment for companies to engage in tax
evasion and illicit financial flows.
It was removed from the list last year after committing to improving its
tax laws.
Finance minister Calle Schlettwein had proposed new tax rules last year to
this effect. Analysts have argued that the rules would collapse the
already struggling economy, which the minister had dismissed, saying
analysts seem to be advocating the erosion of the tax base.
These rules were revised in 2019, which now include the non-deduction of
royalties from non-diamond mining operations. For 2018, these royalties
were around N$380 million.
Extractive industry expert Jaqueline Taquiri said mining companies pay
little to no taxes when they use schemes such as overpricing sales,
excessive interest deductions, and the undervaluation of mineral exports.
She said across all sectors, Africa loses about N$2,6 trillion through tax
avoidance every year.
Taquiri added that although it is true that mining requires massive
investments, mining companies also engage in tax-reducing schemes.
Former prime minister Nahas Angula, who has been critical on how the
government was too heavily dependent on natural resources, told The
Namibian this year that the situation of one mine paying the majority of
mining tax was “dreadful”.
“It is a known fact Africa-wide that resources are abused and exploited by
multinational companies,” he told The Namibian in February.
Angula stressed that there is a lack of skills in government.
“We also do not have the follow-up capacity and expertise to ensure that
the information that mining companies give is accurate. Tax avoidance by
transfer pricing and other means is happening, not only in the mining
sector, but in other sectors as well,” he stated.
Transfer pricing refers to the prices of goods and services exchanged
between two or more related companies. These prices can be manipulated to
reduce income and consequently tax to the government.
Namibia's new tax agency is expected to start operating in October this year.
*This article was produced by The Namibian's investigative unit with
support from Finance Uncovered. investigations@namibian.com.na