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Countries Mull Pandemic Tax Breaks for Mining Sectors

Posted on Apr. 17, 2020

Resource-rich countries like Zambia, Colombia, and Ghana are considering possible tax policy responses targeting their mining sectors amid the coronavirus crisis, from suspending import duties for struggling companies to raising withholding taxes on thriving firms.

Because Zambia is a landlocked country, “the effect of the pandemic on the mining sector has been real,” Joseph Nonde, director of tax policy for the Zambian Ministry of Finance, said April 16. He was speaking during a webinar organized by the Intergovernmental Forum on Mining, Minerals, Metals, and Sustainable Development (IGF) and the African Tax Administration Forum.

The lockdowns in neighboring countries have stymied most of Zambia’s goods exports, so several companies are effectively stuck with many kinds of mineral stocks, which represents a tax revenue loss for the government, Nonde said. The pandemic is hitting lots of mining companies in Zambia hard because it is pushing up their costs, which were already high to begin with, he added.

The government has tried to ease the pressure on some of the mining companies by suspending duties on ore concentration imports and suspending precious metal exports, which can help mining companies continue operations, according to Nonde.

Zambia will also reverse course on new rules that took effect January 1 that prevent mining companies from claiming VAT refunds on lubricants and spare parts, Nonde said.

Colombia has not yet decided whether to grant specific tax breaks to the mining sector, but the Ministry of Energy and Mining plans to present some proposals to the Ministry of Finance, according to Claudia Escobar, adviser to Colombia’s energy and mining vice minister.

Proposals include reducing the amount of corporate income tax that the hydrocarbon and carbon sectors have to pay in advance; reducing the rate of withholding taxes, especially self-withholding that the mining and oil sectors have to pay on exports, and offering investment incentives for companies during the pandemic, Escobar said.

The situation is much different in Ghana than it is in Zambia, according to Martin Ayisi, deputy chief executive of the Ghana Minerals Commission. Ghana’s mining sector relies heavily on gold, and gold prices have been “on fire,” he said.

“We are not thinking of any tax incentives — far from that,” Ayisi said. “Right now, all we are thinking about is, ‘How do we get more?’” The royalty rate on the mining sector is 5 percent, so the government is considering pushing that rate up a bit more when gold prices hit $800 per ounce or more, since the tax is easy to collect, he said. He ruled out a windfall tax, which Ghana had tried twice before to impose during the last commodities supercycle, because collecting that kind of tax is challenging.

Ghana is also thinking about how to tax the small-scale gold mining sector, which represents a large proportion of the country’s gold production, according to Ayisi. The problem is those mines don’t pay royalties, meaning billions of dollars of gold regularly leaves the country untaxed, he said.

One possible option is imposing a 3 percent withholding tax on exporters or even on the small-scale mines themselves, according to Ayisi. While the government passed a 3 percent withholding tax at the beginning of 2020, it has not yet been implemented, he added. “Maybe the time has come for us to implement it,” Ayisi said.

Alexandra Readhead, technical adviser for the IGF, noted that different mining sectors are indeed performing differently amid the pandemic, with gold prices rising and copper prices dropping off.

The IGF and African Tax Administration Forum on April 9 published a guidance note and summary outlining possible mining tax policy responses to the coronavirus crisis, which included some short-term tax policy options like deferring or temporarily exempting payroll taxes, expediting VAT refunds, and offering import duty breaks.

Another option is deferring or waiving mineral royalties, but this should be treated only as a last resort, Readhead warned.

Tax policy measures that countries should not consider include income tax holidays, corporate income tax cuts, and offering withholding tax breaks, since withholding tax is easy to collect and can provide critical resources to governments, according to Readhead.

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