Namra warns foreign companies mineral and petroleum licence transfers are subject to Namibian tax

The Namibia Revenue Agency (Namra) has warned that all mineral and petroleum licence transfers, including those conducted abroad, are subject to tax despite industry concerns.

This comes after Namra commissioner Sam Shivute yesterday said only 5% of companies comply with regulations on the transfer of mineral and petroleum licences.

He said this at a meeting of tax officials, industry representatives, and policymakers, organised by Namra in Windhoek.

“We organised this dialogue so taxpayers understand their obligations regarding compliance,” he said.

Namra tax officials explained that even transactions made between two foreign-registered companies in a foreign country are subject to Namibian taxes if it involves a Namibian asset – in this case, mineral or petroleum licences.

Shivute warned taxpayers and industry representatives that the tax amnesty allowing companies to catch up on these payments expires in October.

“When the tax administration comes looking for its money, there is no excuse,” he said.

Kledura Imalwa, a member of the presidential task force on economic recovery, asked why compliance is so low.

Namra tax officials said they faced difficulty in acquiring underlying documents about transactions – especially those made abroad – but that enforcement mechanisms are being introduced later this year.

Several industry representatives present at the event raised concerns over the current tax regime, saying it turns away investment in the mining and energy sectors.

Paragon Investments co-owner Desmond Amunyela said Namibia should invite investors and tax them only when clear profits are being made.

This would enable the government to generate greater revenue from the success of mining and energy projects, he said.
“Let’s not be penny-wise and pound-foolish,” Amunyela said.

The essence of the issue for industry players is the tax the government levies on entities when they sell shares or transfer mineral and petroleum licences.

Chamber of Mines chief executive Veston Malango said entities are taxed on the sale price of a licence, but they are not able to deduct the cost of any explorations or improvements they made to the licence.

“Commissioner, in 2011 you did it wrong. For petroleum, you did it right,” he said.

The provision relating to petroleum licences was introduced in 2015 and differs from mineral licences in that companies are able to deduct some of their exploration and improvement costs from the tax they need to pay when the licence is transferred.

Malango said mineral explorations have long timelines and are very risky.

Only one in 1 000 exploratory projects eventually becomes a mine.

Malango said the companies that invest in exploration are usually not those who develop the mines.

It should be expected that licences are transferred several times in the course of developing a mine.

“Keep in mind that investors take all risks and the government’s risk is zero,” he said.

Malango recommended adjusting the system so that the sale of shares or interests in a mineral licence is subject to a taxation on profits.

Eduardo Rodriguez, the chairperson of the Namibia Petroleum Operators Association and Shell country representative, said the government has to decide how to balance getting its fair share and promoting investment.

At the early stages of exploration, transactions share risk and enable continued exploration.
He said so-called ‘farm-in’ agreements do not generate profit for companies.

“We’re sharing the risk. We’re trying to attract capital to continue the exploration,” Rodriguez said.

When a project eventually becomes profitable, the government will reap the benefit of explorations and earn significant revenue, he said.

These contributions come at a time of high interest in Namibia’s offshore oil, with several international oil companies such as TotalEnergies and Chevron completing farm-in agreements to enter Namibian petroleum exploration licences.

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