Mining companies routinely deprive African countries of huge amounts of taxÂ revenue that could be used to combat poverty, a new report reveals today.
Breaking the Curse: How Transparent Taxation and Fair Taxes can Turn Africaâ€™s Mineral Wealth into Development highlights the methods mining companies use to pay as little tax as possible. These include:
Forcing governments to grant taxÂ subsidies and concessions by threatening to go elsewhere if they are not forthcoming
Insisting mining contracts signed with governments remainÂ secret. Some governments, also anxious the contracts are not held up to public scrutiny â€“ are happy to oblige.
Using the secrecy surrounding contracts to pursueÂ aggressive tax avoidance strategies.
In at least one country, the DemocraticÂ RepublicÂ ofÂ Congo,Â (DRC), there have been allegations of corrupt politiciansÂ awarding illegal tax exemptions to mining companies in returnÂ for private gain.
- False accounting used, the report alleges, to enable companies to artificially depress profits in countries where they operate to evade tax.
The report has been jointly published by ActionAid, Christian Aid, Third World Network Africa, Tax Justice Network Africa, and Southern Africa Resource Watch.
â€œOne practicalÂ step to addressing poverty in Africa is to ensure that all multinational mining companies pay equitable amounts of tax,â€ said Brian Kagoro, ActionAidâ€™s Pan African Policy Manager.
â€œIf they did, governments could fund social welfare programmes with revenue generated from taxes rather than seeking to borrow money externally.
â€œMining contracts and payments to governments need to be subjected to rigorous parliamentary scrutiny to improve accountability in this sector.
â€œAnd we need to strengthen the capacity of national regulatory tax authorities as well as rationalise international accounting standards to ensure compliance,â€ he added.
The report warns that although some attempts at reform are now being made in countries like Tanzania and Zambia, they could founder because of the recent crash in international mineral prices.
Governments across Africa are finding their negotiating capacity vis-Ã -vis mining companies suddenly diminished.
Those who have already started reforming their old mining tax regimes or renegotiating mining contracts are now facing enormous pressure from companies to reverse these tax reforms in response to falling international prices.
Report editor Kato Lambrechts, from Christian Aidâ€™s Africa policy unit, said:Â â€œThe record amounts various minerals fetched until the bubble burst last year meant little or nothing to ordinary Africans.
â€œMining companies have long ensured that they pay as little tax as possible to the countries that own such resources.Â As a result, the citizens of mineral-rich countries continue to live in poverty.
â€œThe 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.â€
The laws, policies, and institutions that govern the financial payments made by mining corporations to governments need comprehensive reform.
Among the reportâ€™s recommendations is a call for a new international accounting standard that wouldÂ require multinational extractive companies to report on their profits, expenditures,Â taxes, fees and community grants paid in each financial year in each country where they operate.Â