In a move that could lure more investors into the country’s minerals sector, government has struck down a series of taxes that mining firms had long complained about.
Speaking at the investors’ roundtable at State House in Entebbe last week, Finance Minister Matia Kasaija said the mining taxation regime had been amended to address the needs of the industry.
“Companies can register for VAT during exploration but they will access plants and machinery VAT-free,” said Kasaija.
“In the financial year 201516, tax payable on goods they consume will include VAT, but the companies will not pay it. Instead, government will deem them having paid tax. We are doing this because of the importance we attach to the industry,” Kasaija said.
Uganda charges Value Added Tax at 18 per cent, which is one of the highest in the region. President Yoweri Museveni said: “Taxing prospectors, to me, I think is total madness. How do you tax someone who has not even started mining?” he asked.
Mining companies have been complaining that their cash flows are aersely impacted by taxes during the early stages of the projects. Yet it is during these early stages that companies are not sure whether their investment will be recovered.
Uganda imposes a 15 per cent withholding tax on payments for services provided in Uganda to mining companies by non-resident service providers. Subcontractors insist that the mining company must bear the withholding tax yet Uganda Revenue Authority does not count that as an expense. This has been waived.
In February, the issue of taxation in the mining sector was one of the issues that the prime minister Ruhakana Rugunda discussed with the Uganda Chamber of Mines and Petroleum.
At that meeting, Lawrence Kiiza, the director for economic monitoring at the ministry of Finance, said they had prepared a cabinet paper to rationalize the tax regime on investments including oil, gas and mineral exploration. The paper would be used as part of the consideration in the National Budget Framework Paper.
Premier Rugunda said the matter “had been banged on a lot and sincerely the government understands what is at hand”.
Elly Karuhanga, the chairperson of the chamber, wondered whether the ministry of Finance understood the urgency the issue needed. Kasaija, then state minister for Finance, said miners “should rest easy since recently the rice industry was also given VAT breaks” and that their concern would be looked into.
However, the budget framework paper for the 201516 financial year does not refer to the removing of taxes in the minerals sector. The paper only says new tax policy measures to be introduced during the next FY201516 will yield about Shs 460bn, out of which Shs 394bn is from tax policy and administrative efficiency measures.
While the issue of taxation appears to be coming to an end, other issues of land accessibility remain thorny to the miners. Miners say they can’t access the land within which they are licensed to operate because they have to battle huge compensation for land owners, who hold the surface rights.
Uganda’s extractive industry sprawls with a host of minerals including gold, copper, iron ore, tungsten, vermiculite and tin, among others. But despite being rich in minerals, the country has struggled to attract serious investors.
Meanwhile, Kasaija said government did not have geological surveys to establish how many minerals are available in the Karamoja region. Government needs to provide about $15m to $20m for the work. The minister says that money will not be provided in the coming financial year. Government has also maintained its stance on the ban of exportation of unprocessed minerals stays.
Irene Muloni, the minister of Energy, told investors in Entebbe: “The ban persists. The essence of banning is that a country can maximize the benefits from our minerals. Let’s try and get investors on board to get a maximum benefit from these minerals.”
But Richard Kaijuka, the vice chairperson for the Uganda Chamber of Mines and Petroleum described the ban as a “bad idea”, which negatively affects the minerals sector.
“Government must explore ways on how to develop an integrated iron and steel industry. It must make sure we have competitive power – railway, water, and power. All these must be in place,” Kaijuka said. “That’s when we can talk about a ban on the exports of iron ore”.
Source : The Observer