Tax Honeymoon or Tax Avoidance by Mines


WE THANK Kees Dekker for the article 'The misconception behind mines being on tax honeymoon' (The Namibian, 10 May 2019) in which he clarifies some views of the mining industry on the issue of taxation.

Dekker is of the opinion that Namibian mines are not on a tax honeymoon as demonstrated by their cash flows which are restricted.

Unfortunately, his limited perspective does not provide the broader picture of the mining industry and, for example, he does not spell out the crucial topic of 'pre-production investment'.

Firstly, the top 10 mining companies in the world are Anglo-American (UK); Rio Tinto (Australia); Vale (Brazil); BHP, formerly BHP Billiton (Australia); Barrick Gold (Canada); Freeport-McMoran (US); Newmont Mining (US); Teck (Canada); Goldcorp (Canada) and Alcoa (US).

These companies are by and large owned by finance capital, which determines the global commodity prices, which they deliberately set very low. Although most mines are in the global south, they are owned by whites of Euro-American origins and have their headquarters in Canada. It is a crucial component of the global system of exploitation.

One of the main ways of tax evasion is transfer pricing, i.e. subsidiaries of the holding company trade among themselves to purchase, for example, machines for the mines, or supposedly provide loans to each other, but, of course, at massively inflated cost. This is part of what 'pre-production investment' means.

In order to counter transfer pricing, the Independent Commission for the Reform of International Corporate Taxation has proposed a unitary tax on multinational corporations of between 20% and 25%. This global minimum tax rate would be the best option in overcoming the looting.

Another tactic of these multinational companies is to simply report intra-company trade and investment in intangible assets such as intellectual property, which further creates 'ghost cash flows' that do not reflect the reality of economic activity. Even the IMF has estimated that OECD countries might be losing US$400 billion per year due to profit shifting, while non-OECD countries lose around US$200 billion per year in taxes.

Another way to evade tax – which is an added aspect of the alleged pre-production investment –– is the mining list, i.e. a list of everything the mine imports. But this tax-free list even includes items such as toilet paper and toothpaste! Needless to say, this is truly wretched behaviour on the part of the mining companies. Maybe Anglo-American, Rio Tinto or BHP can release their mining list to the Namibian public.

The privatised copper mines of Zambia now only contribute 3% to government coffers compared to when they were nationalised, while the gold mines of Ghana pay less than 2% revenue to that government.

Given the massive social inequality in a mineral-rich country such as Namibia, the scale of loss here is undoubtedly extreme. We are dealing with a sophisticated structure that is uninterested in investing locally or getting local manufacturing going. If anything, Namibia must set up a sovereign wealth fund based on its significant mineral wealth.

The country should not be pleading for tax from the predators, but should have resources sovereignty. What have the politicians been doing since 1990?

It is common knowledge that Rio Tinto pays their Australian workers about N$80 000 per month, while the Namibian workers who do the same kind of work here earn peanuts. Why have different standards for the same working classes?

Similarly, to only focus on cash flows of companies does not even begin to acknowledge their responsibility for the illness (silicosis, TB) rates among Namibian workers and the ecological damage to the earth.

So many Namibian mine workers go and die quietly of lung cancer in the rural areas. Not to mention that the radiation at the RÖssing mine will last at least another 1 000 years. The ecological debt of the mining industry is simply of criminal proportions. So we must democratise the extractive industry to also save our planet.

Radical teachers