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AU team lauds Kenya’s decision to introduce mining taxes

njeruThe recent move by the Treasury to slap property transfer taxes in the mining industry has won Kenya the praise of the Africa Union’s campaign to boost governance and public revenues from natural resources.

The taxes introduced by former Finance minister Njeru Githae in February are positively noted in a report showing how Africa is losing natural wealth in lopsided deals.

Former Environment minister Chirau Mwakwere also gazetted rules requiring 35 per cent local ownership in foreign mining firms.

The report of AU’s African Progress Panel (APP) released on Friday advocates changing national laws to boost transparency and increase the portion of revenues to governments and communities hosting the minefields.

“Many of the countries in the early stages of developing their non-renewable resources, including Kenya and Tanzania, have greatly strengthened macroeconomic governance. They can learn from the mistakes of the past and take a different route,” the APP said in its 2013 report released on Friday.

Kenya’s mining industry has largely thrived on secret contracts between government officials and multinational mining companies, sometimes attracting the wrath of communities and civil society groups.

The secrecy around these deals has sometimes exposed the mining sector to allegations of corruption and tax evasion.

Under pressure from the National Economic and Social Council (NESC) to redistribute mining wealth to citizens, Kenya slapped a 20 per cent withholding tax on foreigners and 10 per cent on local companies that transfer mining rights.

The taxes are expected to raise some Sh300 billion from individuals who acquire mining licences for speculation. The government has also been campaigning to double royalty charges on mines from three to six per cent.

“These measures are necessary to the extent that they will rid the sector of speculators, but the government needs to ensure that heavy tax burden does not discourage investors to this relatively young sector,” Peter Kinuthia, a senior tax manager at Ernst & Young said in an earlier interview.

The APP report titled “Equity in Extractives: Stewarding Africa’s natural resources for all” proposes even tougher measures to end tax evasion, corruption, and weak governance that have undermined Africa’s mining sector for decades.

The panel calls for strong rules and institutions to put an end to the tradition that has seen shrewd businesspeople evade taxes. The practice has been partly blamed for widening the gap between the rich and the poor in many African countries.

The APP report comes at a time Kenya has signalled its intention to make the sector a major contributor to national wealth through creating a stand-alone Mining ministry.

The report details five deals between 2010 and 2012, which cost the Democratic Republic of the Congo over $1.3 billion (Sh108 billion) in revenues through the undervaluation of assets and sale to foreign investors.

“The APP finds it unconscionable that some companies, often supported by dishonest officials, are using unethical tax avoidance, transfer pricing and anonymous company ownership to maximise their profits, while millions of Africans go without adequate nutrition, health and education,” the report adds.

Buoyed by recent commitment by the United Kingdom (as chair of top eight richest nations, G8) to put tax and transparency at the heart of this year’s dialogue, the African peer review team is pushing for a standard law to boost governance of African resources.

To start with, the team wants G8 to adopt capital market rules (such as US Dodd-Frank Act) that compel mining companies operating in Africa to declare the nature of contracts and payments made to host governments.

“Tax avoidance and evasion are global issues that affect us all. But in Africa, it has direct impact on the lives of mothers and children,” said APP’s chairman Kofi Anan.

APP’s other members are Graca Machel (former South African First Lady), Olusegun Obasanjo (former Nigerian President), Strive Masiyiwa (chairman and founder of Econet Wireless), Linah Mohohlo (governor of Botswana’s Central Bank), Michael Camdessus (former MD, IMF) and Peter Eigen (founder, TI).

The report, basing its projection on global market conditions, predicts another decade of high prices for natural resources. Through strong institutions and good governance, it says, African governments can rely on mineral revenues to raise economic growth rate.

Mining companies have been lobbying to scrap the 35 per cent rule in Kenya despite some ceding some stakes to locals. African countries have virtually given their minerals away through insignificant royalties or sale of mining blocks at huge profit to the speculators and buyers.

-Business Daily

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