‘Malawi must strengthen mining profits-based taxes’

Lilongwe – Malawian earth scientist, Grain Malunga, has called on the southern Africa nation to tighten its administrative capacity in the collection of the country’s mining profits-based taxes.
Malunga believes that production-based taxes are easy and cost-efficient to administer. The country faces huge challenges in handling profits-based taxes, which he noted “can be more difficult to collect and require government to possess a higher level of administrative capacity”.
He is a former Minister of Natural Resources, Energy and Environment in the administration of late president Bingu wa Mutharika, which struck a number of mining deals with international companies. His comment comes in the wake of renewed agitation by local civil society groups for the government to renegotiate the mining licence issued to Australian-based Paladin Africa Limited, owners of the Kayerekera Uranium Mine in the northern region district of Karonga, so that the country equitably benefits from the excavated mineral.
The groups argue that Malawi is losing billions of dollars in revenue annually due to both legal and illicit financial outflows from mining proceeds by different multinational companies.
Championing the cause, the Malawi Economic Justice Network (MEJN) observes that despite the opportunities for socio-economic development that natural resource wealth present, transparency and accountability remain a serious political and economic challenge in Malawi.
MEJN Executive Director, Dalitso Kubalasa, warns that since minerals are strategic national resources for economic development, employment creation and poverty eradication, government should break the dominance of multinational companies in the negotiation of mining contracts by enhancing local human and institutional capacities.
“We have to strengthen our legal provisions relating to mining contracts in order to over-ride stability agreements that may prevent future governments from re-negotiating contracts,” he says warning that lack of capacity in negotiating mining contracts undermine accountability and increase potential for loss of revenue. Collins Magalasi, Executive Director of Zimbabwe-based AFRODAD, an international NGO that aspires for an equitable and sustainable development in Africa assures that it is possible to review and renegotiate contracts “bad and obsolete deals” for fair contracts. He calls for the vigilance of civil society in monitoring the activities of mining companies with regard to capital flight including transfer pricing and responsible financing.
Commenting on the matter, Africa Peer Review Mechanism (APRM) Support Section Chief Kojo Busia emphasizes the need for transparency in the fiscal regimes of the extractive sector especially in the sectors’ contribution to national taxation for sustainable development.
“Governments need to be strong in addressing natural resource taxation challenges such as tax avoidance and transfer pricing,” he says advising on the need for African countries to strengthen their public financial management mechanisms, including fiscal governance and tax administration.
Meanwhile, Malawi’s vice president Khumbo Kachali has urged the country’s legislative and civil society organisations to develop and implement governance structures that will ensure that the mining sector has the potential to lift the country from a low income to middle or high income country.
“This potential can only become a reality if transparent governance structures are put in place to ensure proper management and accountability of income generated from such investment,” he says. Kachali further acknowledging that efforts by members of parliament and civil society are critical in influencing policy change and reversing some imbalances in any country’s national development agenda. Speaker of the Malawi National Assembly, Henry Chimunthu Banda says that non-renewable resources such as minerals attract different and inconsistent perspective between governments and mining companies. He observed that: “Some of the reasons are related to global commodity market swings, government mismanagement of resources, or weak, ineffectual, unstable or corrupt institutions, the lack of forward and backward linkages.
He further noted that: “poor legal and regulatory frameworks and weak institutional capacity, including for negotiation of mineral agreements and illicit financial flows through transfer pricing and other mechanisms used by private companies.
“However, regardless of the key constraints befalling the extractive industry, African countries have enormous growth prospects centred on its natural resources.
“What is only required is individual stakeholder commitment and consolidation of own efforts in ensuring that our constituencies benefit from the mineral resources in their respective communities,” he says pointing out that governments should, through appropriate policies, ensure that there is an equilibrium between the interest of investors and those of communities in which they invest.
The Speaker cautioned parliamentarian that: “In as much as we focus on the revenue implications of natural resource extraction, tax evasion and avoidance, the effects of mining to local communities should not be overlooked as they have direct repercussions, for instance, land degradation and pollution of local rivers with waste from the mines.”
Meanwhile, Malunga admits that though the country has not benefited much from the mining, the sector has contributed royalties, land rates, corporate tax, PAYE, resource rent and through various social responsibilities to the national economy.
A fellow at the Institute of Materials, Minerals and Mining and member of the National Geographic Society, Malunga blames Malawi for its inadequate human resources and poor financing of the mineral administration sector.
“We also lack proper co-ordination between CSOs and parliament in drafting development agreements, Strategic Environmental assessments,” he says adding that the country does not have an independent environmental agency.
He said other constraints to the development of the minerals sector include limited knowledge base of the geology and mineral economic potential, vague fiscal incentive framework, weak financial base for long-term borrowing, weak legislative framework and an underdeveloped energy sector and infrastructure.
Through the Malawi Growth and Development Strategy II for 2012 to 2016, the country has focused on nine priority areas of Agriculture and Food Security; Energy, Industrial Development, Mining and Tourism; Transport Infrastructure and Nsanje World Inland Port; Education, Science and Technology; Public Health, Sanitation, Malaria and HIV and AIDS Management; Integrated Rural Development; Green Belt Irrigation and Water Development; Child Development, Youth Development and Empowerment; and Climate Change, Natural Resources and Environmental Management.
These key priority areas are aimed at accelerating the attainment of the Millennium Development Goals (MDGs).
However due to a number of challenges the country is currently facing such as shortage of foreign reserves, scarcity of fuel and essential drugs in hospitals, the government formulated and is implementing an Economic Recovery Plan to ensure that our country returns on track to prosperity.
The recovery plan identifies areas of intervention in the immediate, short and medium term. Some of the measures including the devaluation of the Malawi Kwacha, setting a market determined exchange rate, restoration of bilateral and multilateral relations and the repelling of punitive laws in our country have already been implemented while acknowledging that the MGDS II remains the overarching single reference document for the country’s development agenda.
But since the MGDS II has too many priorities, government focused on a few priorities that are pro-growth. These are diversified commercial agriculture, tourism, energy, mining and infrastructure development.
Malawi has gold deposits in three sites of the country’s administrative regions while it boasts of niobium and rare earth in two southern region districts and one north region district. Lead-Zinc-graphite is found in the central region districts of Lilongwe and neighbouring Salima districts.
Other various gemstones are spread across the Mzimba- Rumphi-Chitipa area in the north, Ntcheu-Balaka-Neno area, and Chikwawa-Nsanje area in the south.

March 2013
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