There has been a wave of reform in mining legislation all over sub-Saharan Africa, with movement toward codes that seek to improve the regulation and transparency in this growing industry. Reform objectives have commonly included increased state participation and introduced new tax regimes and local content obligations, measures aimed to boost revenue from the industry. This article provides an insight into the most recent reforms taking place in a number of these countries.
Burkina Faso’s transitional parliament adopted a new Mining Code in June 2015 which addresses various areas including:
- Mining Conventions and Mining Titles: A technical commission will be created to oversee the granting of exploration licenses and mining conventions. Mining conventions, no longer required during the research phase, have been reduced to a validation period of 20 years and may be renewed for successive periods of 5 years. By contrast, exploration permits remain valid for 20 years. Permit holders are required to notify the Ministry of Mining of any significant changes in the feasibility study, or risk incurring a penalty of 1% to 4% of the production value;
- Tax Regime: There are several tax regime changes at the exploration and exploitation phases. Significantly, a 20% capital gains tax has been imposed on the transfer of mining titles, except where the transfer is to a company created for the sole purpose of holding an exploitation license. Corporate income tax and capital gains tax are fixed at 17.5% and 6.25% respectively. Additionally, tax stabilisation provisions are extended to any new mining taxes, royalties and duties;
- State Participation: The State’s free equity participation is maintained at 10%, however the state can now acquire additional equity: and
- Local Preference: A local development fund and a rehabilitation and mine closure fund have also been created under the new law. These are financed through a mix of a 1% monthly tax on exploitation production, State contribution and a mandatory annual contribution from mining companies based on environmental impact assessments.
Democratic Republic of Congo
In March 2015, the Democratic Republic of Congo’s Minister of Mines submitted a draft of a new mining code to the Congolese Parliament to replace the 2002 Mining Code. This draft is awaiting approval but addresses:
- State participation: The State’s free equity participation will reportedly be raised from 5% to 10%.
- Corporate Tax: to be reduced by 5% to 30%; and
- Royalty Payments: Gold royalties of 3.5%.
The Gabonese Government enacted a new mining law earlier this year with the aim of increasing its mining industry’s contribution to GDP from 6% to 25% in the next 15-20 years. The key areas addressed are:
- State Participation: The State is entitled, through the national mining company Société Equatoriale des Mines (SEM), to a 10% free-carried participation in the capital share of any exploitation company, with an option to acquire an additional 25% at market value;
- Local Preference: Title holders are required to prioritize the employment of Gabonese nationals and set up annual training programs for Gabonese employees; and
- Tax Regime: Corporate tax remains unchanged at 35% while royalties are subject to negotiation, with lower rates applied to more difficult, cost-intensive projects. The Code continues to provide tax exemption for mining operations during the exploration phase, including duty-free imports of working equipment.
The Kenyan Government passed a new Mining Bill in July 2015, the key changes made concern:
- State and Local Participation: The Government is entitled to a 10% free carried interest share in new projects. Mining companies, under the bill, are required to sell 20% of their shares on the Nairobi Securities Exchange (NSE);
- Tax Regime: The Income Tax Act has been amended to harmonise tax rates in the extractive industry by setting the withholding tax rate at 5.625% for contractual services and 12.5% for training; and
- Royalty Payments: Royalty rates have been increased, with those imposed on minerals like titanium ores rising from 3% to 10% and those on diamonds increasing to 12%. Mines that process their minerals locally will be entitled to a lower rate. Revenue from Royalties will be split between local communities, county governments and national government (which it will invests its share in an infrastructure development fund and a sovereign wealth fund.
On 1 January 2015 a new mining tax law came into force, creating a single piece of legislation for tax matters regarding the industry. It addresses:
- Rent tax: A new 20% tax rate applied to the net cash flow of a mining project, from the moment at which it exceeds a rate of return of 18% before tax; and
- Mining production tax: This tax rate has been reduced to: 8% for diamonds, 6% for precious stones or metals, 3% for base metals and 1.5% for sand and rock. These rates are levied on the value of the extracted mineral product after treatment, the determination of which is governed by specific rules. Under the new law there is a tax stabilisation period of 10 years, however this is subject to an additional payment of 2% of the tax due from the eleventh year of production.
Senegal is on the verge of introducing a new mining code, in particular this will deal with:
- Mining Titles: The law limits the types of mining titles available to only “small mine permits” or “mining permits”. Mining permits will be issued for an initial term of between 5-20 years, a change from the current Mining Code (introduced in 2003) under which mining concessions are granted for up to 25 years; and
- State Participation: Free equity State participation will be maintained at 10%, with an option to acquire an additional 25% equity at market value.
- Tax Regime: Tax provisions will be enumerated in the General Tax Code while royalty rates will vary depending on the mineral being mined. The new code will also require title holders to contribute 0.5% of their annual turnover to a local community fund.
This article was first published in Mining Journal, 29 October 2015