Mining royalties justified, says Minister

THE mining industry is making healthy profits and it is therefore not unreasonable to expect the sector to pay royalties to Government, Finance Minister Saara Kuugongelwa-Amadhila told the National Assembly on Tuesday.

Defending Government’s intention to boost its revenue by introducing royalties for non-diamond mining operations, over and above corporate taxes, Kuugongelwa-Amadhila said the mining industry in Namibia was in a “very healthy state” and global mineral prices were on the increase. Government had planned to start charging royalties last year already, but Kuugongelwa-Amadhila said consultations between the Ministry of Mines and the affected companies were still ongoing.”We are all agreed that the mining industry should pay a fair amount of taxes.My understanding of fair in this respect is that our natural resources are exploited to the benefit of all Namibians and that, at the same time, companies engaged in this business operate with adequate profits,” said Kuugongelwa-Amadhila.She was responding primarily to concerns raised by DTA MP McHenry Venaani and CoD MP Nora Schimming-Chase during the Budget debate on whether the mining sector would be able to cope with these demands.Kuugongelwa-Amadhila said Government needed to ensure that the positive outlook for the mining sector had lasting effects on the development of the country.Responding to queries about the forecast drop in royalties from diamond mining by more than half this year (from N$500 million to N$242 million), the Minister said Government projections were based on information collected directly from the companies.Independent analysts have said this situation is puzzling, considering that Namdeb is expecting increased production this year, that diamond prices are rising and the exchange rate is expected to remain constant.This financial year, Government is expected to boost its revenue by around 25 per cent.While corporate tax revenue from the mining sector is expected to be less than last year, non-mining corporate tax is estimated at over a billion dollars – more than double what it was five years ago.Responding to criticism by RP President Henk Mudge that at 35 per cent, Namibia’s corporate tax rate was among the highest in Southern Africa, Kuugongelwa-Amadhila said many factors had to be taken into consideration before this comparison could be justifiably made.These included a range of tax incentives that could reduce corporate tax to as low as 18 per cent for manufacturers, while EPZ companies stand not to pay tax at all.Non-resident shareholders’ tax is also set to more than double this year to N$88 million from last year.Kuugongelwa-Amadhila told parliamentarians that so far Government had received N$4,8 million in land tax, but said more “authoritative figures” could only be expected once the Ministry of Lands finalised certain procedural aspects related to the collection of land tax.The land tax payment deadline has been shifted to the end of July, after originally being due on March 22.The amount Government received was from those landowners who met the original deadline.Motivating the re-introduction of Value Added Tax on luxury items, Kuugongelwa-Amadhila said this would not affect middle-income earners and the poor.She said this was because it would only affect the acquisition of regular day-to-day commodities and thus would only be a burden on “those who can afford it”.The Minister also gave an assurance that unit trusts would not be taxed retrospectively and that tax laws would be amended for future effect.To suggestions that the threshold for taxation on individuals be raised from N$24 000 to N$35 000, Kuugongelwa-Amadhila said Government had to be careful not to lower an already diminished source of taxation.She said countries with generous welfare systems generally also had higher tax rates.Unless operational expenditure was curtailed, she said, the expansion of the welfare service could only be financed through increased taxes.Government had planned to start charging royalties last year already, but Kuugongelwa-Amadhila said consultations between the Ministry of Mines and the affected companies were still ongoing.”We are all agreed that the mining industry should pay a fair amount of taxes.My understanding of fair in this respect is that our natural resources are exploited to the benefit of all Namibians and that, at the same time, companies engaged in this business operate with adequate profits,” said Kuugongelwa-Amadhila.She was responding primarily to concerns raised by DTA MP McHenry Venaani and CoD MP Nora Schimming-Chase during the Budget debate on whether the mining sector would be able to cope with these demands.Kuugongelwa-Amadhila said Government needed to ensure that the positive outlook for the mining sector had lasting effects on the development of the country.Responding to queries about the forecast drop in royalties from diamond mining by more than half this year (from N$500 million to N$242 million), the Minister said Government projections were based on information collected directly from the companies.Independent analysts have said this situation is puzzling, considering that Namdeb is expecting increased production this year, that diamond prices are rising and the exchange rate is expected to remain constant.This financial year, Government is expected to boost its revenue by around 25 per cent.While corporate tax revenue from the mining sector is expected to be less than last year, non-mining corporate tax is estimated at over a billion dollars – more than double what it was five years ago.Responding to criticism by RP President Henk Mudge that at 35 per cent, Namibia’s corporate tax rate was among the highest in Southern Africa, Kuugongelwa-Amadhila said many factors had to be taken into consideration before this comparison could be justifiably made.These included a range of tax incentives that could reduce corporate tax to as low as 18 per cent for manufacturers, while EPZ companies stand not to pay tax at all.Non-resident shareholders’ tax is also set to more than double this year to N$88 million from last year.Kuugongelwa-Amadhila told parliamentarians that so far Government had received N$4,8 million in land tax, but said more “authoritative figures” could only be expected once the Ministry of Lands finalised certain procedural aspects related to the collection of land tax.The land tax payment deadline has been shifted to the end of July, after originally being due on March 22.The amount Government received was from those landowners who met the original deadline.Motivating the re-introduction of Value Added Tax on luxury items, Kuugongelwa-Amadhila said this would not affect middle-income earners and the poor.She said this was because it would only affect the acquisition of regular day-to-day commodities and thus would only be a burden on “those who can afford it”.The Minister also gave an assurance that unit trusts would not be taxed retrospectively and that tax laws would be amended for future effect.To suggestions that the threshold for taxation on individuals be raised from N$24 000 to N$35 000, Kuugongelwa-Amadhila said Government had to be careful not to lower an already diminished source of taxation.She said countries with generous welfare systems generally also had higher tax rates.Unless operational expenditure was curtailed, she said, the expansion of the welfare service could only be financed through increased taxes.