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Namibian taxes may kill off mines

Aug 10 2011 09:29 James-Brent Styan

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Windhoek - The Namibian government wants to introduce new taxes on mining that could shake the foundations of the country’s industry.

One of the proposed amendments to the tax legislation announced by the government in July involves mines having to pay VAT of 15% on the export value of unprocessed minerals, as well as a 5% export duty.

The income tax rate for the mining industry will also be increased from 37.5% to 44%.

Windhoek analysts estimate that the impact of the new taxes on mines' profits could be as much as 15%. This would render the business plans of many of Namibia's new and existing mines unworkable, said Namibian economist Robin Sherbourne.

The Namibian government has big development plans but does not know how to fund them, he explained.

The main reason for the new plans is that the state urgently needs to broaden its tax base to compensate for lost income from the Southern African Customs Union.

He added that the government had also renewed its focus on industrialisation and the beneficiation of raw materials, since these industries go hand in hand with job creation.

Government is looking at the goose that lays the golden eggs and says it wants more.

Sherbourne said mining in Namibia is already particularly heavily taxed and any additional taxes could severely impair industry growth. This is a sensitive period for Namibian mining, he said.

The industry has significant potential to grow, but it currently requires significant capital injection. If the taxes currently under discussion are introduced, the money supply could be cut off.

Turnover tax

Mining already makes the biggest contribution to Namibia's fiscus. Veston Malango, the chief executive of the Chamber of Mines of Namibia, said the minister of finance has already announced the new taxes and now wants consultation with the chamber. The entire industry is busy compiling reports to explain the impact of the taxes to the minister.

Namibia, with its unemployment rate of more than 50%, is highly dependent on the mining industry for jobs. Some 8 000 people are directly involved in the industry, with many thousands more involved indirectly.

Windhoek mining analyst Steve Galloway said the government wants mines to add greater value in Namibia before minerals are exported.

But, he said, the industry believes that the maximum amount of value is already being added to mining. Uranium, for example, is processed into uranium oxide before being exported. It is not believed that uranium can be processed further than this in Namibia.

Uranium and diamond mines are Namibia's biggest mines.

Galloway said the government also plans to tax companies on turnover rather than profit.

This means that, no matter whether a mine turns a profit or not, it will be taxed on turnover. Mines will not survive such action.

An analyst who wishes to remain anonymous said that if the taxes are introduced there is the danger of other member states of the Southern African Development Community considering similar taxes.

Malango said the industry’s delegates will soon meet the minister of finance to discuss the issue further.

- Sake24

For business news in Afrikaans, go to www.sake24.com.
namibia  |  mines  |  tax
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