Fin24

Namibian taxes may kill off mines

2011-08-10 09:29

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.

Comments
  • HVS - 2011-08-10 09:48

    Its about time an African country starts to put higher taxes on global mining companies exploiting our resources and then sharing the profits overseas. Namibia should well be setting the trend for the rest of africa.

      Tolerant - 2011-08-10 12:31

      Not very clever. If taxes are too high, companies will close down or leave and unemployment will go up. Unemployment might reach 60% soon.

      SaintBruce - 2011-08-10 14:54

      Hello HVS - Namibia already admitted they cannot beneficiate their minerals and metals themselves! To do that takes huge capital investment and the economists will tell you that the African habit of asking for capital then taking the deal away from the investor keeps those plants placed where investors can trust a return on their money! I Love Levit8's comment - taxes are a fine on production - too high a fine causes productivity to stop. Tax turnover and a business will die.

      Arries - 2011-08-10 16:26

      HVS you did not think that statement through, did you? Do you know that the price of minerals/ore is a global price. Just the same as gold, platinum, oil, etc., so the mines can't ask for more for their product, because they wont get it, their consumers will just move on to the next supplier. Not to mention that Australia is hard on their way developing the Olympic Dam deposit (largest Uranium deposit in the world), which will almost triple their current output. To put it plainly, the Uranium market is soon to become very saturated. Taxing the mining industry more will/can only lead to the demise of the industry. If it wasn't for the global mining companies the development/exploration of the deposits would never have happened, so don't be so quick to label them as "bad".

  • Creeky - 2011-08-10 10:53

    Which part of STUPID do these people NOT UNDERSTAND???? COSATU & the ANC and the YL.... are you watching? Just think how many job LOSSES we are talking about here...!!!!!

  • levit8 - 2011-08-10 11:15

    The golden goose is firmly in the crosshairs !! One more bankrupt neighbouring country on the way.

  • zackie - 2011-08-10 12:41

    SA is going to kill the goose with Anc stupid nationalise talk..these mines will be running off too congo, nigeria to do business

  • Redwine - 2011-08-10 12:55

    I do not understand that companies always get away with taxes. I pay tax on my gross income not my disposable income. Surely the same priciple should apply. If I first get te deduct wagebills of demostic servant, gardenboy and capital expenses for house, car etc SARS would not get a cent out of me. I also pay VAT on all other purchases. Companies like banks, mines and mobile companies have record sales figures but contribute very little to fiscus.

  • Jamie - 2011-08-10 13:01

    If one just identified Tax correctly, as a Fine, then in essence people are being fined for being productive. When the fines get too excessive, one stops committing the "crime", what different reaction do they expect ?

  • JMan - 2011-08-10 13:09

    This sucks...but at least its not nationalization...

  • Nasdaq7 - 2011-08-10 14:00

    Those companies just won't have the funds to open more mines and foreign investors won't invest because it will become too expensive to run a mine in Namibia. I agree with the increase in export duties because that could boost income for the government without disrupting mining too much. But small mines are affected when corporate tax increases. Why? Because the big mining companies can export themselves out trouble - they open more or enough mines to produce and sell enough to negate the higher taxes. But small mining companies can't export enough to pay these higher tax rates. They have much less capital available and can't borrow as much as big companies. So small mining companies will be hit the hardest and may retrench mine workers just to make enough money to open new mines.

  • BigD - 2011-08-10 14:26

    Once the cow is dry then what. There is a tomorrow.

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