Mining sector asks authorities to educate URA on mineral valuation

Speaking at the mining tax dialogue organized by the Uganda Chamber of Mines and Petroleum and USAID-Domestic Revenue Mobilisation for Development Activity (USAID-DRM4D) last week, Frank Mugyenyi, Founder of Global Minerals Africa Development Institution said that establishing common guidelines for mineral taxation, including tax rates, deductions, and exemptions to promote consistency and reduce barriers to cross-border investments and trade is urgently needed to support the growth of the sector regionally.

“Regional integration requires coordination and harmonization of tax policies among participating countries,” he said.

Mugyenyi mentioned that the mineral tax regime should include incentives that encourage value-addition activities within the region through tax breaks, subsidies, or reduced tax rates for companies that engage in downstream processing, manufacturing, and other value-adding activities.

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“Such incentives will attract investments, promote industrialization, and increase the regional value created within the mineral value chains,” he said.

Mugyenyi also said, facilitating the movement of minerals and mineral products across borders is crucial for regional integration and that the mineral tax regime should align with trade agreements and customs frameworks to eliminate or reduce trade barriers such as import duties, export restrictions, and non-tariff barriers.

Taxation and fees structure

Currently, in Uganda, an investor in the mining sector has to pay annual rent fees such as Shs100, 000 for a mining lease per hectare or part of a hectare, Shs100,000 for a retention license per km2 or part of a square Km, and an exploration license of Shs50,000 per km2 or part of a square Km.

Additional fees include a royalty of 5% on gross sales net of smelting and refining costs, and corporate income tax of 30%. Taxes include dividend withholding tax_equivalent to 15% for non-residents, interest withholding tax of 15% for non-residents, import duty of 10% for capital goods, and 10% for intermediate goods. The law also provides for an export levy of 5% for processed gold.

Uganda Revenue Authority collected Shs80 billion from the extractives sector (oil and gas and mining) in FY2020/2021, Shs170 billion in FY 2021/2022 and Shs430 billion in the FY 2022/2023. Approximately 90% of these collections come from the oil and gas sector compared to 10% contribution from the mining sector.

Participants in the dialogue said these tax rates and related fees are many and high and need to be reduced to boost the growth of the sector.

Mining sector asks authorities to educate URA on mineral evaluation/COURTESY Pulse

Digitisation and mobilisation

They suggested that the government put in place digital communication tools to facilitate easy access to information which would translate into easing the cost of doing business.

They also mentioned the need to boost investment in capacity building and knowledge of Uganda Revenue Authority (URA) staff to be able to understand the sector and offer the required service, development, and maintenance of a national database of miners and product minerals.

Uganda’s National Development Plan (NDPIII) running from 2020/21–2024/25 has prioritized the development of five categories of minerals namely; Iron ore, Gold, Copper, Phosphates, and Development Minerals (marble, silica sand, aggregate, and limestone) given the advancement of efforts to ascertain their commercial viability and data availability on the same.

Government reforms

Government officials have since said studies will continue to fully quantify all the other minerals whose occurrences are known. It has allocated Shs54.3 billion in the current financial year budget up from Shs49bn last year to help in quantifying the country’s mineral deposits to ascertain their value before beneficiation.

The government has also promised to operationalise the 2022 minerals act to regulate artisanal and small-scale miners.

The new law is intended to provide a robust, predictable, and transparent legal regime, improve mining and mineral administration and business processes, ensure efficient collection and management of mineral revenues, promote value addition to minerals, and increase mineral trade.