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Improving Mining Tax Administration Frameworks In Africa

Africa

Strategies to attract investment to the mining sector in Africa have resulted in several fold mining revenues increases in some countries. This rapid growth, however, outpaced the capacity of government to adequately control and monitor mining sector activities or to adequately capture relevant revenues and resulted in a demand for more equitable distribution of the benefits from mining activities, as well as for more transparency and accountability in government’s use of mining revenues.

One of the central challenges many African countries face relates to their capacity to put in place a framework to collect a fair level of mineral revenues aligned to contractual agreements and in so doing set the stage for a potential use of mineral revenues for sustainable development. An improved revenue-collection framework would entail clear identification and strengthening of different levels of administrative capacity required to implement various tax instruments, followed by the development and setting up of effective and co-ordinated, physical and financial control systems for the two key institutions managing the mining sector i.e. the Ministries in charge of Finance and Mining. 

Retention of CET by the World Bank (WB) and more recently jointly by International Mining for Development Centre (IM4DC) to address these challenges is now entering its fifth year and covers the following assignments:
 


PHASE 1
2012-13 Program - Completed - Formulation of a framework for the strengthening of the mineral tax administration capacity of Governments (Ministry of Mines and Ministry of Finance) in Africa to ensure compliance with mineral development contracts and the general fiscal regimes. Based on mapping of the current physical and financial controls for mineral revenue collection (royalties and other mining related imposts), including assessment of capacity and institutional constraints and risks in three West African countries (Burkina Faso, Mali and Ghana), the WB and CET have recently published a Source Book on “How to improve mining taxation administration and collection frameworks”. 




2013-14 Program - Completed - This practical “how-to” Source Book and related comprehensive survey questionnaires represent the basis for the delivery of a number of international workshops to improve mineral tax compliance conducted in Africa to train key units in the Ministries of Finance and Mines involved in mineral tax collection. The first workshop was successfully completed in Ghana in September 2013, followed by one in South Africa in February 2014, in Tanzania in May 2014 and in Ethiopia in September 2014.


PHASE 2
2014-15 Program - Completed - A research study has been conducted in the complex area of transfer pricing (TP) as applied to transactions between related parties in the context of mining in Africa. Corporate re-structuring in combination with misuse of transfer pricing has increasingly eroded the tax basis of and shifted profits from mineral-rich countries to low-tax jurisdictions. As a consequence transfer pricing has recently emerged as a major area of concern, in developing and developed countries alike. This study has drawn knowledge from both public taxation authorities and specialised international accounting firms and from responses to a widely distributed transfer pricing questionnaire. An Interim Progress Report was compiled in the form of a Briefing Note to the G20 meeting which took place in Brisbane in November 2014. The final results of this study have now been captured in the final draft of a book entitled “Transfer Pricing in Mining Industry with Focus on Africa: A Guide Book for Practitioners”. This guide book is intended to be of practical relevance to the needs of tax practitioners in mineral-rich developing countries, assisting in their progressive development and implementation of good TP policy, rules, systems and procedures. The draft has now been reviewed and cleared for publication by a number of TP specialists at the WB and by three external TP specialists from the OECD, ATO and University of Texas. It is intended that the guide book be published before the end of 2016.
This program also included two diagnostic field missions to Namibia and Tanzania to review their mineral royalties and mining income tax policy and administrative procedures, including current transfer pricing compliance practices.
 




PHASE 3
2015-16 Program - Completed – This phase of work included a number of activities. Firstly the transfer pricing guide book was finally edited and published in English and is being translated into French. A summarised version of the Guide book, designed to inform a different, less specialised audience of decision-makers and stakeholders was also drafted and published. This Transfer Pricing Summary Briefing Note was targeted to politicians, the media, civil society and non-government organisations with an interest in mining taxation. 

       

PHASE 4
2016-17 Program – Completed – This phase of work included:
Development of a comprehensive suite of appropriate training material to support together with the Transfer Pricing Reference Book a range of specialised training workshops to be conducted in selected developing countries.
Delivery of three specialised international workshops on transfer pricing for government officers involved in mining taxation from the ministries of Finance and Mines from a number of jurisdictions in Africa and South America. Transfer Pricing workshops were conducted in:
o Tanzania,
o Panama and
o Senegal.

The Tanzania workshop was funded by such as the African Mineral Development Centre (AMDC) part of the United Nations Economic Commission for Africa (UNECA) and its logistics managed by the Minerals and Energy for Development Alliance (MEfDA) (the successor to IM4DC).
The Panama workshop was funded by the German aid group Deutsche Geselschaft fur Internationale Zusammenarbeit (GIZ)  and by the World Bank (WB) which also took care of the related logistics. Following the Panama workshop, the delivers made presentations at an in-house seminar at the WB’s headquarters in Washington, D.C.

The Senegal workshop was funded by the UNECA/AMDC and by the WB and its logistics managed by MEfDA.
 

 
PHASE 5
2017-18 Program – Being planned
Up to date TP workshops have been delivered on a regional basis bringing about sharing of different experiences and ideas, but batching up together African countries with essentially different spreads of mineral commodities and related issues, legislative frameworks and tax administrative capabilities.
In combination with the comprehensive coverage and complexity of the subject, this meant that some issues and/or mineral commodities relevant to individual countries could not be explored to the level of detail that their tax officers would have liked. Participants’ feedback suggests that some of the future workshops could be delivered for:
• specific countries and/or 
• mineral commodities. 

This approach will also reduce the cost of running individual country workshops to a fraction of that of regional workshops and provide an opportunity for officers of different ministries (e.g. Finance and Mines) and government agencies involved in formulating and administering mining taxation policy in the country to attend in larger numbers enhancing communication and co-operation between different agencies and promoting sharing of relevant information leading to improved collection of mining revenue. Selected officers from nearby tax jurisdictions with similar mineral endowments and mineral taxation issues will also be invited to attend these workshops.

The possibility of planning this type of workshop in Mali and Guinea is being discussed with the UNECA/ANDC. The former could attract other nearby Francophone countries displaying rich gold endowments, the latter could polarise interest in the complex TP issues relating to bauxite and be supported by the results of commodity pricing research currently being conducted by the CET in co-operation with the OECD.