Mining Contracts

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The Mines and Minerals Act (2009), together with the Income Tax Act (2010) and the Finance Act of 2010 constitutes the fiscal and legislative framework for mining contracts in Sierra Leone.[1]

Fiscal terms

According to a research report by the nonprofit organization DanWatch, in 2010 the following shares derived from the total government revenue from mining:[2]

  • Leases and License Fees: 19 percent
  • Royalties: 13 percent
  • Corporate Income Tax: 10 percent
  • Witholding Tax: 33 percent
  • Goods and Services Tax: 12 percent
  • Other taxes, Import Duties and levies: 14 percent

Leases and license fee

In Sierra Leone as in other countries, to explore and mine an area companies need to hold a mining license and a lease for which they pay a fee.[3]

Royalties

According to the Mines and Minerals Act (2009) royalties are charged by the following percentages of the market value of minerals:[4]

  • Precious stones (diamonds): 6,5 percent for large scale miners, 3 percent for small-scale. For special stones defined as those with a market value above US$ 500,000, the rate is 15 percent
  • Precious metals (gold): 5 percent
  • All other minerals: 3 percent

Due to diamond smuggling, the government has difficulties in monitoring the production and exports of mining companies and royalities can often be evaded.[5]

Income tax

According to the Income Tax Act (2000), the corporate income tax rate for mining companies is 37.5 percent, while the general company tax rate is 30 percent.[6]

However, according to DanWatch, mining companies in Sierra Leone hardly declare any profits and therefore corporate income tax revenues were only US $2.4 million or 10 percent of total government revenue from the mining sector in 2010.[7] In 2010, out of the top five mining companies (which are Sierra Mineral Holdings Ltd., African Minerals Ltd., London Mining, Sierra Rutile and Koidu Holdings), only Sierra Rutile is pays corporate income tax.[8]

Withholding tax

Withholding tax obliges the payer of a payment to withhold a certain percent of that payment as taxes to the government.[9] For example, when a mining company pays interest on a loan, it is to withhold 15 percent of the amount as taxes. A range of withholding taxes applies to the mining sector:[10]

  • on interest 15 percent
  • on dividends 10 percent
  • on rents (e.g. on machinery) 10 percent
  • on payments to resident contractors 5 percent
  • on payments to non-resident contractors 10 percent

Goods and services tax

Goods and Service Tax GST is a tax on sales, similar to value added tax (VAT).[11]

Nonconformity with legislative framework

According to a mid 2013 paper by Fanthorpe and Gabelle, the main feature of recent mining licence agreements in Sierra Leone is their nonconformity with the provisions of the Mines and Minerals Act (2009), the Income Tax Act (2000) and the Finance Act of 2010.[12]

A briefing document published by the National Advocacy Coalition on Extractives, for instance, notes that although the original London Mining PLC (LM) agreement of December 2009 was revised in August 2011, it still departs from existing legislation in the following areas:[13]

  • LM retains a six per cent income tax rate for three years and pays 25 percent for the remaining duration of the lease while standard corporate income tax rate in Sierra Leone is 30 percent.
  • LM pays one percent import duty on the value of imports of mining equipment for the first eight years, a reduction by two thirds of the standard rate.
  • The company has been granted reductions in three categories of withholding tax: dividends, interest on loans and contracts awarded to non-residents.
  • LM is permitted to offset community development spending, lease and surface rent payments against tax, which is not provided for in legislation.
  • LM has been given an exemption from paying social security contributions for its expatriate staff, which is not provided for in legislation.

Task force on mining licenses and agreements

A Task Force on Mining Licenses and Agreements was set up in July 2008 under an initiative by President Koroma to reform governance of the extractives sector.[14] The primary objective of the task force was to examine all agreements and licenses for current or planned mining activities in order to determine whether optimum gains were being secured for the economy.[15] Its report in 2009 lead to the re-negotiation of mining licence agreements between Sierra Leone's government and four major companies: Sierra Rutile, Koidu Holdings (Octea), Vimetco (Sierra Minerals) and London Mining PLC.[16]

Contract transparency

As of October 2013 Sierra Leone has not published contracts with extractive companies and releases only partial data on most aspects of the mining industry.[17]

References

  1. Political Economy of Extractives: Governance in Sierra Leone”. Fanthorpe, R. and Gabelle C., 2 July 2013.
  2. Not Sharing the Loot”. DanWatch, 26 October 2012.
  3. Not Sharing the Loot”. DanWatch, 26 October 2012.
  4. Not Sharing the Loot”. DanWatch, 26 October 2012.
  5. Not Sharing the Loot”. DanWatch, 26 October 2012.
  6. Not Sharing the Loot”. DanWatch, 26 October 2012.
  7. Not Sharing the Loot”. DanWatch, 26 October 2012.
  8. Not Sharing the Loot”. DanWatch, 26 October 2012.
  9. Not Sharing the Loot”. DanWatch, 26 October 2012.
  10. Not Sharing the Loot”. DanWatch, 26 October 2012.
  11. Not Sharing the Loot”. DanWatch, 26 October 2012.
  12. Political Economy of Extractives: Governance in Sierra Leone”. Fanthorpe, R. and Gabelle C., 2 July 2013.
  13. The Revised London Mining Agreement: Better, But Still a Major Problem”. National Coalition on Extractives, 27 March 2012.
  14. Political Economy of Extractives: Governance in Sierra Leone”. Fanthorpe, R. and Gabelle C., 2 July 2013.
  15. Political Economy of Extractives: Governance in Sierra Leone”. Fanthorpe, R. and Gabelle C., 2 July 2013.
  16. Political Economy of Extractives: Governance in Sierra Leone”. Fanthorpe, R. and Gabelle C., 2 July 2013.
  17. Resource Governance Index: Sierra Leone”. Revenue Watch Institute, retrieved 27 October 2013.