Namibia recently reiterated that it will not reduce tax on diamond mining despite concerted lobbying by the country’s leading diamond producer, Namdeb.
Namdeb, a joint venture between De Beers and the Namibian government wanted the tax rate to be cut to 37.5 percent, the same level as other mining companies in the country.
“We can’t entertain an idea that diamonds should be taxed at the same rate as other mining companies,” Namibia’s finance minister Saara Kuugongelwa-Amadhila said early this month.
“We made a conscious decision to set the tax rate at 55 percent because those diamonds are highly valuable and Namibians should share in the benefits.”
This was not the first time that she indicated this year that the tax rate on diamond mining would be maintained at 55 percent.
She said in February while tabling her annual budget in parliament that the diamond miners would not be given any preferential treatment.
This left Namdeb dejected.
"We [the mining industry] would have wanted some sort of relief, particularly to the diamond mining sector,” Nambeb chief executive Inge Zaamwani-Kamwi said then.
“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."
Zaamwani-Kamwi further stated that the diamond industry was a “mature industry” and their cost structure was already high enough.
“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,” she said.
Although it’s sad that the company was saddled by a high tax bill, their failure to realise that no amount of crying will change the government’s heart, is somewhat irritating.
If there was any hope before that Windhoek would make a volte-face on diamond mining tax, this should have been completely blown away by Kuugongelwa-Amadhila’s recent pronouncement.
Rather, Namdeb spokesperson Pauline Thomas chose to put cotton buds in her ears as she was quoted as saying by Bloomberg that they would keep lobbying the government to lower the tax.
“(The) Namibian diamond mining fiscal regime is one of the highest in the world and goes beyond the tax rate of 55 percent on profits as it also includes a royalty of 10 percent on turnover,” she said. “This fiscal regime has been unchanged for many years.”
Surely, Namdeb should accept the reality and move on, just like other miners that are operating under strenuous conditions.
This ‘waiting for Godot’ mentality, hoping a miracle would take place someday, is laughable.
Surely, Namdeb is putting the government in a tight spot by continuing to ask for something impossible.
It will certainly not look good that the government was giving tax relief to a company that it half-owns.
Doing so will also set a dangerous precedent that Windhoek will never satisfy.
There is no doubt that non-diamond producers, will also be forced to make a bee-line at the finance minister’s offices for tax relief, if Namdeb gets what it wants.
The minister had already shown an appetite for an increase in mining tax not cuts.
She was forced to back down on her proposal to increase income tax for non-diamond mining companies to 44 percent in 2011 following a major outcry by miners.
“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.”
So, it is time that Namdeb gave up on its lobbying for tax relief, as this has not yielded desired results.
Given the central role that mining plays in terms of revenue inflows to the Treasury, Namdeb’s efforts are doomed to fail no matter how many times they may try.
Mining (mainly diamonds and uranium) accounts for 8 percent of Namibia’s GDP, but provides more than 50 percent of foreign exchange earnings.
No finance minister wants to see a major source of government foreign exchange earnings being tempered with, hence Namdeb’s futile attempt.
Mathew Nyaungwa, Editor in Chief of the African Bureau, Rough&Polished
