Representatives from Namibia’s mining and petroleum sectors are urging government to revise the country’s tax framework governing the sale of shares or interests in companies holding mineral and petroleum licences, arguing that the current system discourages exploration investment and fails to reflect the high-risk nature of exploration activities.
Industry representatives say taxation should be aligned with realised profits rather than the gross transaction value of licence-related deals. They also called for clearer valuation guidelines for such transactions to improve investment certainty while ensuring government still captures revenue once projects move into production.
The proposals were raised during a stakeholder engagement hosted by the Namibia Revenue Agency (NamRA) in Windhoek.
Chief Executive Officer of the Chamber of Mines of Namibia, Veston Malango, said current tax provisions applied to transactions involving mineral licences result in taxation being levied on the value of the transaction rather than on profits realised by investors.
“Taxation is based on the transaction value or sale value, less licence costs only paid by the company. The seller pays 30% of the whole transaction value. Yet the seller is disposing of shares, not mining. The sellers cannot deduct the costs they have incurred along the way,” Malango said.
He said this effectively treats the sale of shares as if it were a royalty payment, even though no mineral extraction has taken place.
“This is tantamount to a royalty payment, which is a revenue-based tax, incorrectly applied. The concept of royalty tax is to reward a jurisdiction for the extraction of a depleting resource,” he said.
Malango said the mining industry supports paying taxes but believes the structure should reflect the risks undertaken by exploration investors and the long development cycle typically associated with mining projects.
“Taxation on the sale of shares or interests in mineral licences should be based on realised profits rather than the gross transaction value,” he said.
He added that introducing a capital gains tax framework could balance government’s revenue interests with the need to maintain exploration investment in Namibia.
“NamRA should consider the introduction of capital gains tax to support the fiscus while incentivising investment in exploration for the long-term sustainability of the mining industry,” Malango said.
Chairperson of the Namibia Petroleum Operators Association, Eduardo Rodriguez, raised similar concerns from the petroleum sector, particularly regarding farm-in and farm-out transactions commonly used during exploration to attract additional investment partners.
“Exploration transactions share risk and attract capital to enable continued exploration activities in uncertain frontier basins,” Rodriguez said.
He said such transactions should not be treated as profit-generating events because they are typically used to finance ongoing geological testing and exploration work.
“These transactions represent reinvestment to test geology, not events for profit realisation or economic rent extraction,” Rodriguez said.
Rodriguez warned that taxing exploration transactions before commercial value has been proven could create timing mismatches between tax obligations and project returns.
“Taxing contingent value at the exploration stage misaligns tax timing with actual value creation and risks taxing unrealised value,” he said.
He added that taxing farm-in and farm-out transactions based on implied exploration-phase values could discourage companies from entering risk-sharing agreements that allow exploration projects to continue.
“Taxing farm-in and farm-out transactions based on implied exploration-phase value discourages risk sharing,” Rodriguez said.
