THE diamond industry’s mining royalties to government were recorded at N$1 150 347 061,26 during the 2017/18 financial year.
However, the figures provided to by the mines ministry showed that other minerals only provisionally paid in N$172 million in royalties during the same period. Figures for January to March 2018 are not yet available.
Economics and management sciences professor at the University of Namibia, Roman Grynberg stressed that mining companies hate royalties because they increase costs and therefore decrease the commercially available reserves of any mine.
He added that mining companies are also averse to them for the reason that royalties are more difficult to evade.
“Royalties are an important part of the mining taxation regime in most countries. They are usually an ad valorem tax (based on the value of exports). They are important because it is hard to cheat on these taxes; as long as you monitor the price and quantity exported, then the company cannot evade or avoid the tax. With company tax it is easy to evade or avoid through transfer pricing,” Grynberg said.
Robert McGregor, economist at Cirrus explained that royalties on rough diamonds amount to 10% of turnover, those on nuclear fuel minerals (such as uranium) are at 3%, and gold, copper, zinc and other base metals attract a 3% royalty.
“They benefit the economy in the sense that these royalties are due to the state, and thus form a part of government revenue, along with corporate taxes and other levies. Royalties and corporate taxes on diamond mining companies form the largest contribution from this sector to government revenue, around 5% of total government revenue. While this is not insignificant, personal income tax, non-mining corporate tax, value added tax, and Southern African Customs Union receipts all contribute much more to government revenue,” he said.
Eloise du Plessis head of research at PSG Namibia said the big difference between royalties and taxes is that taxes are levied on profits (which is after expenses have been deducted) and royalties are on the sales or revenue amount.
This means that even if a mining company made a loss, they would still pay royalties on the sale of the minerals.
She added that in 2015, the income for the Namibian government in royalties from mining companies was N$ 1,24 billion.
“Additionally, N$ 2 billion was received in company taxes from mining companies. In the latest budget, government estimates to receive, on average, N$ 1,3 billion in royalties per year over the Medium-Term Expenditure Framework (2016/17 – 2019/20). Royalties give immediate benefit to citizens from the mineral wealth of their country if allocated responsibly for the benefit of the entire population. Funds could be used to improve infrastructure and roads and make other developmental investments,” du Plessis said.
Du Plessis noted that the reason why there are royalties and taxes is that it can be years before any mine pays taxes because of the high capital expenditure and the related depreciation expenses which reduce the profit in an accounting sense.
“The ore body has, however, paid off most of the capital expenditure by investors so for governments to ensure some flow of funds for the minerals extracted, royalties are imposed,” she said.
