The extent to which mining companies routinely deprive African countries of huge amounts of tax revenue that could be used to combat poverty is revealed in two reports published yesterday.
'Breaking the Curse: How transparent taxation and fair taxes can turn Africa’s mineral wealth into development' highlights the methods mining companies use to pay as little tax as possible.
The second report, 'Sierra Leone at the crossroads: Seizing the chance to benefit from mining', details how one of the poorest countries in the world recently earned only US$9-10 million in a year from mineral exports of US$179 million.
'Breaking the Curse', commissioned and published jointly by Christian Aid, ActionAid International, Third World Network Africa, Tax Justice Network Africa and Southern Africa Resource Watch, lists the measures that mining companies use to reduce their tax bills. These can include:
· Forcing governments to grant tax subsidies and concessions by threatening to go elsewhere if they are not forthcoming
· Insisting mining contracts signed with governments remain secret. Governments are themselves often keen to keep the contracts from public scrutiny, and are happy to oblige.
· Using the secrecy surrounding contracts to pursue aggressive tax avoidance strategies.
· In at least one country, the Democratic Republic of Congo, (DRC), there have been allegations of corrupt politicians awarding illegal tax exemptions to mining companies in return for private gain.
· False accounting is also used, the report alleges, to enable companies to artificially depress profits in countries where they operate to evade tax. According to one set of calculations, US$620 million in untaxed export earnings in minerals were lost to South Africa in trade with the US between 2002 and 2005 inclusive.
Report editor Kato Lambrechts, from Christian Aid’s Africa policy unit, said: "The record prices various minerals fetched until the bubble burst last year meant little or nothing to ordinary Africans. The methods outlined in the report meant that African countries were unable to take advantage of the boom in international metal prices.
"Mining companies have long ensured that they pay as little tax as possible to the countries that own such resources. As a result, the citizens of mineral-rich countries continue to live in poverty.
"The losses are fuelled by a lack of transparency concerning the financial remittances mining companies make to government institutions, coupled with the inability of revenue departments in poorer countries to audit the complicated accounts of multinational mining companies."
Brian Kagoro, ActionAid’s Pan African Policy Manager, commented: "Mining contracts and payments to governments need to be subjected to rigorous parliamentary scrutiny to improve accountability in this sector.
"And we need to strengthen the capacity of national regulatory tax authorities as well as rationalise international accounting standards to ensure compliance."
Among the report’s recommendations is a call for a new international accounting standard that would require multinational extractive companies to report on their profits, expenditures, taxes, fees and community grants paid in each financial year in each country where they operate. That way, abuses can be quickly spotted.
The second report, Sierra Leone at the Crossroads, is published by the country’s National Advocacy Coalition on Extractives, which includes Christian Aid, ActionAid Sierra Leone, Catholic Relief Services and World Vision International.
It reveals how a 2003 agreement with Sierra Rutile, one of the country’s two largest foreign investors, reduced the company’s royalty rate to 0.5 per cent until 2014 and scrapped entirely the payment of corporate income tax on profits until 2014.
Rutile is processed into titanium oxide which, finely powdered, is a brilliant white pigment used in paints, plastics, papers and foods.
An internal government review estimates that revenue losses from tax concessions granted to the company will amount to US$98 million between 2004 and 2016.
Of mining in the country generally the report says: "There is an extreme lack of transparency, with a lack of information at all levels, creating mistrust and ignorance about the financial position and intentions of government and companies.
"Some companies provide no public financial information on their activities while the government does not publish a figure showing how much it earns from mining overall...
"Many laws and policies need to change if ordinary Sierra Leoneans are to benefit significantly from mining."