Thursday, March 26, 2009

Breaking the Curse

Mineral-rich African states have been deprived of huge sums of royalties and taxes by mining firms, a report says. The report, by prominent development charities, blames a lack of legislative oversight and excessively generous tax concessions agreed with the firms.
It says some mining companies have also avoided paying tax through secret contracts with African governments. The study covers South Africa, Sierra Leone, Ghana, the Democratic Republic of Congo, Malawi, Tanzania and Zambia. Commissioned by development charities including Christian Aid and ActionAid, the Breaking the Curse report calls for reform of the institutional framework that negotiates mining concessions and monitors the royalties paid.

  • Ghana, a top African gold producer, is losing $68m (£46.7m) annually because it is receiving low royalties.
  • Tanzania, the continent's third largest producer of gold, could be losing $30m (£20.6m) a year in potential revenues.
  • Low royalty rates could be costing South Africa, the continent's biggest gold producer, up to $359m (£246m) a year
Mining companies operating in Africa are granted too many tax subsidies and concessions.
There is high incidence of tax avoidance by mining companies conditioned by such measures as secret mining contracts, corporate mergers and acquisitions, and various ‘creative’ accounting mechanisms. These tax subsidies, together with tax avoidance and alleged tax evasion practices by mining companies, have robbed African treasuries of millions of dollars of tax revenue from the mining industry. The citizens of mineral-rich countries continue to live in poverty, and are in some cases subject to violent conflict fuelled by the wealth generated from mineral resources as is the case today in the eastern DRC.

African mining tax regimes are a mix of secret and discretionary tax deals, as well as tax laws enacted through parliament. Most mining tax laws dating from the 1990s have lowered taxes considerably to attract new foreign direct investment into the sector. This shift to lower taxes has been promoted by the World Bank in all its client countries in Africa, as a means to revitalize the mining sector. Many of these laws allow ministers to negotiate tax deals with individual mining companies at their discretion, often leading to lower royalties, corporate taxes, fuel
levies, windfall or other taxes than those stipulated in the law. At their worst, contracts
may completely exempt companies from any taxes or royalties, as was the case in a number of the mining contracts signed between private companies and state-owned enterprises in the DRC
between 1997 and 2003.
Full Report here

“It is surprising how potentially wealthy nations depend, almost at alcoholic proportions, on aid from countries in the West and most recently Asia,” Brian Kagaro, Action Aid Pan African policy Manager said. “If Africa is truly a mineral-rich continent, why are its people languishing in poverty?”

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