Malawi: Tax regime should not favour mining companies at local communities' expense, says columnist

Author: Rachel Etter-Phoya, in Mining in Malawi, Published on: 17 August 2017

"How might the Malawi government fail to secure a fair share of natural resource wealth?"

‘Is the deal a good deal?’ is a question often asked about the agreement signed between Paladin and the government for Kayelekera uranium mine. Reductions in royalty rates and other tax incentives have come under public scrutiny, while the company and government argue that these were necessary for the project to go ahead.

In Malawi, negotiating tax terms has been the norm to date for mining and petroleum contracts. The amendments to the Taxation Act passed last year address this for solid minerals by fixing tax rates. This was done in an effort to protect future potential revenues from the sector. However, reduced tax rates are not the only way a government can lose revenue. Revenue can be lost through erosion of the tax base against which tax rates are applied...

It also goes without saying that strengthening tax administration is vital, but an imbalance in expertise between companies and government ‘will remain, for the foreseeable future, between the lawyers and accountants’. And it may be wiser to change the balance between profit-based and production-based taxes to the latter, which have fewer associated revenue risks. Finally, project-level revenue analysis, using public disclosures, is the most effective way to understand payment to government through ‘taking into account project production and project costs, the sale value of the commodity and the applicable fiscal terms’. The report is a reminder for the government to look beyond revisions to tax rates to ways to address the erosion of the tax base because ‘tax rates are meaningless in the absence of the tax base against which they are assessed. Put simply, whether the corporate income tax is 25 or 35 percent is irrelevant if companies report no taxable income’.

Read the full post here

Related companies: Paladin Energy