Namdeb, a joint venture between De Beers and the government of Namibia, has been complaining for the past two years that the country’s tax on diamond mines is cramping their operations.
Diamond mines in Namibia pay a royalty on turnover of 10 percent and company tax of 55 percent on profits.
Desperate for a tax-relief it asked the Chamber of Mines to lobby the government for a softer tax stance.
It also refined its plea last year when it said the government could only reduce tax on projects that do not meet “certain profit thresholds” of the company.
After intense lobbying, Namdeb had high hopes that the finance minister Saara Kuugongelwa-Amadhila would announce a tax relief when she presented her budget for the 2013/2014 financial year recently.
Snub
Unfortunately, she had bad news for the miner, as she decided to maintain the income tax for diamond mining companies.
Kuugongelwa-Amadhila also left the income tax for non-diamond mining companies at 37.5 percent.
Her previous attempts to increase income tax for non diamond mining companies to 44 percent were met with a major outcry by miners and she was forced to back down.
“The proposed 44 percent corporate income tax for the non-diamond mining sector is done away with,” the finance ministry said then. “Instead, the current rate of 37.5 percent is to operate in conjunction with a formula-based surcharge to capture additional mining revenue during better economic periods,” it proposed.
Nambeb chief executive Inge Zaamwani-Kamwi said that the mining industry expected to get a tax relief since it was one of the highest taxed in the region.
"We [the mining industry] would have wanted some sort of relief, particularly to the diamond mining sector,” she was quoted as saying by the Namibian Economist.
“Like the rest of the mining industry, diamond mining is capital intensive and requires huge upfront investments.
“Although there are very generous capital allowances in the Tax Act that allows one to write off capital over a three-year period, diamond mines are required to pay a royalty on turnover of 10 percent and company tax of 55 percent on its profits, the net effect being an effective tax rate of around 65 percent that increases as profitability decreases due to the fixed element of the royalty."
She said the high taxes were hamstringing their operations and any reduction in the diamond mining tax or royalty rates would have a positive impact on extending the life of their mine operations.
Never rains but pours
Sadly, for Namdeb, it would soon have to deal with another levy that the finance minister intends to present before parliament.
She proposed during her budget statement that the mining industry pay export levies on raw materials.
The government informed the mining industry last August of the impending new export levy.
It said then that a surcharge formula as a windfall tax on profits would be introduced, to push up non-resident shareholders’ tax from the current 10 per cent to a 20 per cent.
Zaamwani-Kamwi was disenchanted as more misery continued to come their way.
"We had hoped that the export duty that is being considered would probably not be made applicable, but here we are, we have to see what the additional impact of the levy will be,” she said.
“The diamond industry is a mature industry; our cost structure is already high enough. We are already paying high taxes.
“Namibian diamond mining taxes are probably the highest in the region, if not in the world, so any other additional costs that you impose just makes it impossible for us to unlock the value in the diamonds that are in the ground.”
Mathew Nyaungwa, Editor in Chief of the African Bureau, Rough&Polished
