Namibia could be losing significant amounts in tax revenue amid concerns that multinational corporations could be prejudicing treasury through illicit financial flows, a new report by the African Peer Review Mechanism (APRM) has shown.
Studies show that Africa could be losing US$50 billion annually due to various forms of illicit financial flows such as tax evasion, transfer pricing, and under-invoicing, among others.
The APRM report states that the tax culture of multinational enterprises has been nurtured to work well in an environment that has limited capacity and resources to effectively detect and combat tax evasion malpractices.
“The mechanisms deployed to facilitate tax evasion are growing in sophistication, which results in the likelihood of mining companies paying little to no taxes when using schemes such as overpricing sales, excessive interest deductions and undervaluation of mineral exports,” the report said.
APRM conducted a country review of Namibia where it recommended that there is a need to enhance institutional capacity to curb tax evasion in the extractive sector.
“Namibia’s average corporate tax rate is at 30%. In addition, the panel recommends that Namibia should develop a national strategy to avert potential tax malpractices in the extractive sector through robust legal and law enforcement systems, while also learning from, and creating cooperative frameworks with other countries and global and regional institutions experienced in fighting this vice,” it said.
APRM recommended that there is also a need for authorities to equip specialised units such as the Revenue Authority, Customs, Economic Intelligence, and other stakeholders, with the skill set and capacity to understand the mining value chain, auditing, and investigate international tax evasion malpractices.
Meanwhile, Namibia Revenue Agency (NamRA) Commissioner Sam Shivute last year told The Brief that the Agency is structuring an independent auditing department, solely focusing on the oil, gas and renewable sector, as it endeavours to seal loopholes in tax evasion and maximise on revenue collection.
In addition, the review panel further indicated that export diversification and value addition are needed for Namibia to compete in the wider regional and continental markets.
“Although Namibia withdrew from COMESA in 2004 due to what it saw as unfair trading competition. Nevertheless, the country has agreed to join the much larger continental market under the African Continental Free Trade Area (AfCFTA). The Panel encourages the Government to ensure there are adequate safeguards against similar unfair competition,” the APRM said.
“A commitment to progressively liberalise tariffs under the AfCFTA portends significant risks of growing trade imbalances unless export diversification and value addition are greatly enhanced. To this end, Namibia is developing key trade policies including trade in goods, trade in services, and the National AfCFTA Implementation Plan.”
Namibia’s mining sector is mainly composed of diamond, uranium, metal ores and other mining and quarrying sub-sectors.
Further supporting these findings, is a 2021 report by the National Planning Commission (NPC) on the ‘Impact of the Mining Sector on the Namibia Economy,’ the mining sector’s average annual contribution to GDP was 11.1%, although it remained constant between the start and end of the review period, from 14.9% in 1990 to 14.0% in 2018.
“The mining sector has not transformed significantly from extraction and export of minerals in their raw materials to increased value addition. However, the value addition has been done on Gold (gold bars); Diamonds (diamond polishing and processing); Copper (copper smelting – copper cathodes); Zinc (Zinc processing leading to 99.995% pure zinc); dimension stones (processing of marbles and granites into table toppers and tiles); Coarse salt (refined salt); and Cement,” states the NPC report.
The mining sector has on average been a key growth driver as it registered strong growth, recording a strong average annual growth of 13.9% from 1981 to 2018 driven by robust growth in all mining sub-sectors.
“However, the sector’s growth has been marred by volatilities.”
Ownership of different mines is largely dominated by foreign companies who mainly extract and export such minerals to external markets. Ownership of all mines combined is skewed more towards foreign 88.1% than Namibians with only 11.9%.
Furthermore, mining companies have contributed about N$537.9 billion between 2013 and 2018 to improve the living conditions of local communities, although they are of the view that more still needs to be done.
Namibia joined the APRM in January 2017, while this study was conducted from 25 October to 10 November 2021.
