Revenue Transparency, Sharing and Utilisation

 

Governments collect revenues from mining activities through various forms of taxes and use these revenues to fund social services, infrastructure and other national development initiatives. The fiscal regime applied in the extractive sector is of major importance in the realisation of national objectives. The extraction of minerals lowers the wealth of a country – unless the funds generated are invested in other areas.

Claude Kabemba's picture

Director of the Southern Africa Resource Watch (SARW)

January 13th, 2014

 

Governments collect revenues from mining activities through various forms of taxes and use these revenues to fund social services, infrastructure and other national development initiatives. The fiscal regime applied in the extractive sector is of major importance in the realisation of national objectives. The extraction of minerals lowers the wealth of a country – unless the funds generated are invested in other areas.

Extraction makes a country poorer because resources such oil, gas and minerals are not renewable. Once they are out of the ground and sold they cannot be replaced. It is only the subsequent reinvestment of resources into capital (physical or natural) that can offset the loss of this natural wealth and make a country richer. It should also be noted that the resources belong to the people and the people should benefit.

Just as extractive industry companies are in business to generate wealth for their shareholders and are concerned about the level of profits and growth in shareholder value, Governments are also in the mining business to make money and must be concerned about the revenue they collect for their citizens. In terms of revenue collection, it is important for Governments and mining companies to be transparent and accountable to the people in relation to the generation, use and management of the revenue. Therefore, the price of extracted mineral resources must reflect their value since they are non-renewable.

Recommended Principles and Guidelines for Revenue Transparency, Sharing And Utilisation

i.             Citizens through their Parliamentarians and representative structures must be allowed to have complete access to information and be informed about their mineral resources and the manner in which they are managed, especially contracts entered into and revenue generated. Confidentiality clauses must be eliminated in all contracts.\

ii.             A clear revenue sharing formula must be put in place before exploitation starts. Progressive fiscal policies and contractual terms are necessary to ensure that the country gets maximum benefit from its resources.

iii.            Mining companies must publish what they pay to Government and Government must publish what they receive from companies as required by Publish What You Pay (PWYP). 

iv.            Government must have put in place an effective revenue collection system. This requires flexibility of approach, as well as capacity and expertise in the different phases of mineral exploitation. 

v.            Government must stop the practice of granting tax exemptions to extractive companies unless these subsidies are part of a carefully considered development plan. Tax systems must be more flexible and each country must develop the capacity to know the quality and quantity of its minerals in order to accurately determine or project the tax that will be paid by mining companies to Government.  

vi.            Government must take measures to curb illicit financial flows, tax evasion and avoidance in the extractive sector. In addition, Governments must try to avoid dealing with companies that are registered in tax havens.

vii.            Any company that is involved in mining should be listed on the stock exchange in each country where it operates.

viii.            All mining tax rates and terms should be legislated for and used in all mining agreements.

ix.            The tax administration must be strengthened, reflect international standards and conducted in a way that ensures that mining companies understand their obligations, entitlements and rights.

x.            Government must put in place revenue auditing mechanisms that are transparent and efficient. This initiative must be anchored in the Extractive Industries Transparency Initiative (EITI) and involve ratification of the UN Convention Against Corruption.

xi.            Government must put in place budgets that clearly differentiate between all the various sources of revenue to provide an accurate picture of the contribution of the mining sector.

xii.            Taxes alone are not sufficient for the country to benefit from its resources. There is need for government to increase its share in the ownership of mines (for example, through joint ventures with the private sector) in order to ensure that the country does not only benefit through royalties and taxes.

xiii.            International and national resource companies must comply fully with national and internationally accepted standards for accounting, auditing, reporting and publishing of accounts.

xiv.            The Auditor General (or equivalent office) must report regularly to Parliament on the revenue flows between international and national mining companies and the Government.

xv.             Royalties are a depletion allowance and should be paid regardless of profit levels. They can be suspended if mining companies experience financial stress. Royalties should be based on gross sales rather than levels of profitability. Forgone royalties or other tax income streams can be used to increase government shareholding in mining companies.


This will help to avoid important accountability information being declared confidential when it could inform the public about mismanagement of resources.

The EITI aims to promote transparency as well as social and economic benefits from oil, gas and mineral extraction.

 

About the author(s)

Claude Kabemba is the Director of the Southern Africa Resource Watch (SARW). In 2006, the Open Society Initiative for Southern Africa (OSISA) asked him to spearhead the formation of SARW. He holds a PhD in International Relations (Political economy) at the University of the Witwatersrand (Thesis: Democratisation and the Political Economy of a Dysfunctional State: The Case of the Democratic Republic of Congo). Before joining SARW, he worked at the Human Sciences Research Council and the Electoral institute of Southern Africa as a Chief Research Manager and Research Manager respectively. He has also worked at the Development Bank of Southern Africa and the Centre for Policy Studies as Policy Analyst. Dr. Kabemba’s main areas of research interest include: Political economy of Sub Saharan Africa with focus on Southern and Central Africa looking specifically on issues of democratization and governance, natural resources governance, election politics, citizen participation, conflicts, media, political parties, civil society and social policies. He has consulted for international organizations such Oxfam, UNHCR, The Norwegian People’s Aid, Electoral Commissions and the African Union. He has undertaken various evaluations related to the work of Electoral Commissions and civil society groups interventions in the electoral process in many African countries. He is regularly approached by both local and international media for comments on political and social issues on the continent. His publication record spans from books (as editor), book chapters, journal articles, monographs, research reports, and newspaper articles.

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