Scarcity of specialised skills and lack of competitiveness by companies at international level are among the challenges facing the extractive industry in Africa.
Last week, speakers during the 4th IBFD Africa Tax Symposium at Whitesands Hotel in Mombasa painted a picture of a continent that although endowed with many natural extractive sites, is still struggling to develop them and compete with other established countries such as those in the Middle East.
In his presentation on problems and prospects in the taxation of extractives, Dr Boniphace Luhende, a lecturer at University of Dar-es-Salaam School of Law, said unlike Kenya and Uganda, Tanzania has made significant strides in the industry.
“While Tanzania is Africa’s fourth largest miner of gold, both Kenya and Uganda mining industries are relatively unexplored. However, we expect Uganda to start production of crude oil by 2020. Kenya will also soon start production of crude oil. Currently, 30 out of 56 wells have hydrocarbon shows,” he said.
Dr Luhende said mining in Tanzania contributes to four per cent of the country’s GDP. He added that the country started commercial production of natural gas in 2004.
“However, contribution of natural gas is still low, with reservoir of natural gas currently estimated at 55 trillion cubic feet,” he added.
He said the industry in Tanzania is even expected to grow higher because of the government’s interventions, which include potential tax revenues like the Fiscal Instruments aligned to best practices and anti-tax avoidance measures.
“There is the ongoing exploration of gas and oil with reservoir estimates of 55 tcf. Completion of the 492 km natural gas pipeline, discovery of Uranium and the proposed construction of crude oil pipeline from Uganda to Tanzania is expected to boost the sector,” he said.
Currently, Tanzania gets six per cent royalties on diamonds and gemstones and one per cent on metallic mineral group, which include copper, gold, silver and platinum. “The country further gets three per cent on cut and processed gems and other minerals, and five per cent on Uranium. The country also gets 12.5 per cent royalties on gas and oil onshore and 7.5 per cent offshore,” he said.
Mr Gabriel Okoyo, a senior Tax Advisor at Tullow Oil Kenya, said in order for African countries to realise the full potential of extractives and to have higher revenues in future, they need to look at the areas that have an impact on the industry including tax laws, and stakeholder relationship. “There is need for amendments to various legislations to align with the industry’s best practice, and also to have good working relationship between stakeholders and revenue authorities,” he said.
Mr Okoyo named several problems encountered in taxation of extractives in Africa among them Product Sharing Contract versus tax legislations. He also cited policy considerations, Value Added Tax, custom duties, Transfer Pricing, and Pay As You Earn. “For example, VAT regime should reflect the industry characteristics upfront. VAT is a regressive tax, which increases projects cost, impacting funding requirements and rates of return on investments. There are also a lot of a bottlenecks in processing VAT remissions,” Mr Okoyo added.
On his presentation on policy and practical considerations for the extractive industry in East Africa, Mr Mark Anthony from Nigeria said many African countries with mineral resources have not been able to avoid the resource curse.
“If they are not suffering the mismanagement of the resources, they are allowing these resources to largely go untapped,” he said.
“Countries outside the African content that have diligently prosecuted the exploitation of their mineral resources are better off for it. The Nordic countries of Norway, and Sweden among others are typical examples in this regard,” added the past president/council member of the Chartered Institute of Taxation of Nigeria.
Mr Anthony said some of the challenges faced within the context of the extractive industries in Africa as a whole is the area of managing expectations. “Some of these include those from local individuals and communities, where the resources emanate,” he said.
“We also face other challenges like capital limitations by indigenous companies to invest in the industry, insufficient support infrastructure, low state of knowledge transfer within Africa among others,” he said.
To address these and other problems, Mr Anthony said there was need for access to modern technology, skills and finance.
“There is need therefore to bridge the gap between the significant value addition that comes from high capital intensity of modern mining production activities and the small scale low profit and hazardous operations in artisanal mining, which currently permeate the sector across Africa,” he said.