nairobi -tax and the amv - tetteh h

8/10/2019 Nairobi -Tax and the AMV - Tetteh H

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The African Mining Vision and

Tax PolicyTetteh Hormeku, TWN- Africa

TAX JUSTICE NETWORK-AFRICA International Tax Academy, 1-6 Dec 2014 Machakos, Kenya


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Introductory

Main argument: The logic of the African Mining Vision poses a

broader role for taxation as a policy tool thanwhat it has been so far (since the mid- 1980s)

From a narrow tool generate revenue in a waythat is consistent with attracting FDI

To one that: (a) optimises mining revenue toAfrican countries; (b) helps link mining todevelopment; (c) minimises social and env.damage.


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Outline:

I. Broader Agenda of Mining and DevelopmentII. The World Bank-IMF mining policy

framework in place since the mid-1980s, therole of taxation, and the effects;

III. The Alternative Logic of the African MiningVision;

IV. A New Approach to Taxation and theExtractive Sector.


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Mining-Development Nexus: KeyPillars

I. Revenue(a) How much is generated?(b) How much of it stays in the economy?

II.Economic Development(a) Enclave?(b)inter-sectoral linkage & structural transformation?

III. Social Disruption and Environmental Degredation?


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A Bit of History

I. Colonial: Scramble, Appropriation and ExpropriationII. Immediate Post-Colonial: Capturing commanding

heights nationally, sub-sumed within internationalfmwk.Nationalisation, Joint ownership, royalties.Limitations:

Companies had day to day managment; devices to control earnings

Global mining framework mining, processesing, trade, etc controlled bycompanies

III. Crisis and World Bank 80s


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Existing Mining Policy Regimes

The recovery of the mining sector in Africa will require a shift ingovernment objectives towards a primary objective ofmaximizing tax revenues from mining over the long term,rather than pursuing other economic or political objectivessuch as control of resources or enhancement of employment.This objective will be best achieved by a new policy emphasiswhereby governments focus on industry regulation and

promotion and private companies take the lead in operating,managing and owning mineral enterprises.

Strategy for African Mining World Bank, 1992


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Role of Taxation

Attract Foreign Investment. In context of raceto the bottom. Thus, roughly similar over-generous tax regimes in all countries:- No VAT- No import or export taxes (except SL)- CIT rates down from 40% during 70s/80s to 30% or lower- Extremely low witholding taxes (between 10 and 15%) on dividends,

loan interest and consultant fees compared to other miningeconomies (20-35%).

- No windfall or additional profit taxes- Very low royalties: average 3%- Stability agreements


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Supplemented by:

Tax avoidance and evasion practices by TNC Transfer mispricing

Tax Havens

Abuse of Tax Holidays

Etc


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Effects: 1

Revenue capture by TNCs at the expense hostcountries

Case of Zambia in Copper Bonanza.

From 2004-2008 copper prices rose from $1000 to $8,000 pertonne. Konkola Mining Firm profit rose from $52.7 million to $206.3. First

Quantum profit rose from $4.6 million to $152.8 million. Zambia got: $10million (2005/2006). 2004- copper price $2,868;

400,000tonnes export- Zambia $8m; from same volume and priceZambia got $200m in 1992, i.e.- before privatisation


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Effects: 2

Perpetuation of Primary Commodity ExportDependence and Consequences:

Global crisis and collapse of export revenues and economies: e.g.

dramatic case of Botswana. [At height of crsis loan up 1.5billion eurosfrom ADB. Largest ever ADB loan] Terms of trade declined by 24% and 21% respectively for North and

Sub Saharan Africa Cumulative terms of trade losses in 1970-1997represented almost 120% of GDP, a massive and persistent drain of

purchasing power. (World Bank, (2000) UNCTAD: resources lost would have raised Africas investment ratio by

almost 6% in non-oil producing African countries and added 1.4%yearly to annual growth. This would give a per capita GDP of $478 for1997 instead of the actual level of $323.


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Effects:3

Environmental Degradation and SocialDisruption Borne by Mining Communities


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The AMV Alternative A short history

Adopted in 2009 by AU Summit

Action Plan with nine programme clusters to beimplemented at national and regional levelsapproved by Ministers in December 2011

Report: Minerals and Africas Development

published December 2011 Implementation coordination centre AMDC being

established at ECA

12


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The AMV Alternative (Contd) A knowledge-driven African mining sector that catalyses &

contributes to the broad-based growth & development of,and is fully integrated into, a single African market through:

Down-stream linkages into mineral beneficiation andmanufacturing;

Up-stream linkages into mining capital goods, consumables &services industries;

Side-stream linkages into infrastructure (power, logistics;communications, water) and skills & technology development(HRD and R&D);

Mutually beneficial partnerships between the state, theprivate sector, civil society, local communities and otherstakeholders;


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Related Policy Interventions

Trade: regulating import and export policy in favour of

domestic supply, production Technology

access to and transfer of technology; local adaptation; anddevelopment.

Investment setting terms for foreign investment to promote

productive capacity in local economy; primacy to nationalinvestment


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Related Policy Interventions (contd)

Finance: Moblising mining revenue in support; developing finance insitutions and mechanisms A domestic procurement and processing fund?

Enterprise Development state support for local enterprises state enterprises (fully, joint with local private...)

Cross-cutting: knowledge, infrastructure, etc


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Tax and the AMV Alternative

Taxation and Optimal Revenue: Review of existing regimes of incentives,

frameworks, and contracts to ensure a better fitbetween revenue purposes:

royalties, windfall tax, capital gains tax

Remove the immense and unjustifiablesubsidisation of mining companies through thegenerous tax regimes

More stringent/holistic regimes to combattransfer mispricing and other illicit flows. Eg:

W.U.T


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Tax and the AMV Alternative: Contd

Linkages and Diversification: Domestic Procurement- Optimally, suppliers based

in national and/or regional markets supply inputsinto mining that are produced from region.

Beneficiation or more local use/processing of endproducts of mining by operators in local/regionaleconomy

Migration of mining technology, skills, products toother sectors.


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Domestic Procurement: An example

ACTIVATED CARBON

Used for : Absorbing Gold in Cyanide bleach solution. Wider use: Toremove mercury vapour from water and air

Total Global Imports:

2009: US $1.08 billion: Japan (13%); US (12%)Germany (8%)

West Africa imports : Ghana: ($3.8m (2008); from Philippines (62%),Nertherlands (24%) and India (6%)Burkin Faso $2.3 million in (2010); from Philippines (76%), Indi (15%),

and Ghana (4.8%) Guinea-$251,000 (2008); from India (54%); Netherlands (34%)

Indonesia (12%)

Raw Materials : Conconut Shell, Palm Kernel, Wood Chips, Sawdust,Corncobs, Seeds


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ALL LOCAL MANU-FACTURING

NO LOCAL MANUFAC-TURING

LOCAL PARTICIPATION, OWNERSHIP, MANAGEMENT AND EMPLOYMENT

LOCALLY BASEDFOREIGNMANUFACTURER/SERVICE PROVIDER

SUPPLIER NUMBER 4

LOCALLY BASED FOREIGNMANUFACTURER/PROVIDER

WITH SOME LOCALPARTICIPATION

SUPPLIER NUMBER 5 SUPPLIER NUMBER 6

LOCALMANUFACTURER/PROVIDER

LOCAL IMPORTER

SUPPLIER NUMBER 3

FOREIGN EXPORTER /

WITH SOME LOCAL

PARTICIPATION

SUPPLIER NUMBER 2

FOREIGN EXPORTER

SUPPLIER NUMBER 1

E X T E N T O F L C O A L V A L U E A D D E D


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Tax and the AMV Alternative: Contd

Equity: Support of local producers, includingASM

Environmental Sustainability: Factoring in thecost.


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Tax and the AMV alternative: Fin

The Fiscal Challenge: Raise Revenue Re-orient tax devices and policies and target them

to support the development of domesticproduction capacity

in extractive sector,

domestic manufacturing overall economy.


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AMV Follow-Up Steps and CSOs

Action Plan AMDC

Regional Mining Policy Ecowas Mineral Development Policy (EMDP) SADC Mining Protocol

Country Mining Vision CSO Mobilising and Engagement

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