Principal Minerals Officer Ministry of Minerals, Energy and Water Resources

Onthusitse Melaetsa

Is Taxation of Minerals in Botswana a success story –

and what can other countries learn from this?

Is Taxation of Minerals in Botswana a success story –

and what can other countries learn from this?

OutlineOutline• Introduction• Minerals Policy objectives• Pillars of the Policy• Feature of Mining Legislation• Fiscal Regime• Government’s investments in mining• Investment in Mining• Citizen Participation• conclusion

IntroductionIntroduction

• Botswana’s modern day mining started in the early 1970’s with diamonds and copper nickel.

• Country’s economy now dominated by mining, accounting for:– about 32% of government revenue– third of GDP

• Minerals being mined: diamonds, copper, nickel, coal, soda ash, salt and various industrial minerals.

Minerals Policy ObjectivesMinerals Policy Objectives1. Maximize the economic benefits for the nation while

enabling private investor to earn competitive returns.

2. Create a competitive environment to stimulate private sector investment in mineral exploration and exploitation.

3. Encourage linkages with the rest of the economy to expand value addition activities.

4. Generate employment and training for Botswana’s citizens

5. Safeguard the environment.

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Pillars of the PolicyPillars of the PolicyProtection of private property rights and accepting foreign

investors as an integral part of the business community as well as their entitlement to make and repatriate profits:

– We take seriously the return to investors from projects and investors can repatriate their profits as we do not have exchange controls.

– Low level of taxation and prudent economic management.

Formation of joint ventures with private enterprise who are providers of technical, commercial and financial capabilities.

Adoption of commercial principles in the planning and operations of mines.

Security of tenure that allows for automatic progresion from exploration to mining.

Clear and streamlined licensing procedures.Environmental obligations that relate to international best

practice.

Feature of Mining LegislationFeature of Mining Legislation• Exploration and exploitation of minerals governed by the Mines

and Minerals Act first enacted in 1969 with revisions in 1976

and 1999.

• All minerals rights are vested in the state

Fiscal RegimeFiscal Regime• Taxes applicable to mining are royalties, corporate tax (22%) and

withholding tax on dividends (7.5%).• Royalties paid on gross market value @

– 10% for diamonds– 5% for precious metals (gold, platinum etc.)– 3% for all others minerals

• Mining companies taxed using variable income tax rate (for all minerals except diamonds) using formula: Annual Tax Rate = 70-1500/x, where x = taxable income/gross

income– Minimum rate is the standard corporate rate of 22% of the

profit• Tax Regime for diamonds requires negotiations on issues covering

technical, financial and commercial aspects of the project.• Immediate 100% write-off of capital.• Unlimited carry forward of losses.

Govt’s investments in miningGovt’s investments in mining• Government derives revenue from royalties, taxes and

dividends.

• Govt’s investments and sources of dividends are:

– 50% interest in Debswana, jointly owned with De Beers– 50% interest in Botash ( soda ash producer)– 15% interest in Tati Nickel Mining– 15% interest in De Beers– 94% interest in BCL limited (copper-nickel mine) – 50% interest in Diamond Trading Company Botswana– 80.8% indirect beneficiary shareholding in Morupule

Colliery (a subsidiary of Debswana)

Mining investment decisionMining investment decisionSection 40 of the Mines and Minerals Act provides for the Government to exercise an option to acquire equity in new mining companies upon issuance of a mining licence. The Government’s decision to invest in mining companies is informed by several considerations some of which are:

• Increasing revenue through dividends: opting to have equity stake in mining companies enables the Government to receive dividends income in addition to statutory revenue flow from corporate tax, royalty payments and withholding tax.

• Strategic decision: A mining company may be considered strategic in terms of revenue generation, employment creation, national security and downstream industries.

• Promoting local ownership of mines: mining is by nature a high capital intensive venture, this inhibits the participation of citizens in the sector. Even where such companies are publicly listed, the quantum of shares that may be acquired by citizen investors may be negligible in terms of influencing decisions. The Government equity stake therefore provides an alternative method of promoting local ownership.

Current MinesCurrent MinesMine Mineral Company Shareholders

Jwaneng, Orapa, Letlhakane and Damtshaa

Diamonds Debswana Government (50%) & De Beers (50%)

Lerala Diamonds DiamonEx DiamonEx (100%)

BK11 Diamonds Monak Ventures Firestone Diamonds (90%), Batswana Partners (10%)

AK06 (Development stage)

Diamonds Boteti Mining Lucara Diamonds (60%), African Diamonds (40%)

BCL Copper-Nickel BCL Limited Government (94%) & Norilsk Nickel(6.4%)

Phoenix & Selkirk Copper-Nickel Tati Nickel Mining Company

Government (15%) & Norilsk Nickel (85%)

Mowana Copper African Copper African Copper (100%)

Mupane Gold Gold IamGold IamGold (100%)

Botash Soda Ash & Salt Botash Government (50%) & Chlor-Alkali Holdings (50%)

Morupule Colliery Coal Debswana Debswana (100%)

Gope Diamonds Gope Exploration Gem Diamonds (100%)

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Citizen ParticipationCitizen ParticipationSmall Mines

Identification and assessment of industrial minerals by the Government up to Bankable Feasibility Study and invite Batswana to tender. For example:

• construction aggregates• ornamental stone• cement grade limestone

Large Mines

As part of Corporate Strategy, there are certain services that are reserved for citizen contractors. For example:

• Drilling• Catering• Supply chain

ConclusionConclusion

• The tax regime adopted is intended to ensure that Botswana remains internationally competitive in attracting and retaining mining investment.

• However this has comprised Botswana’s ability to optimize returns.

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ContactsContacts

Ministry of Minerals, Energy and Water ResourcesP/Bag 0018 Gaborone, BotswanaTel: +267-365-6600Fax: +267-372-738Emails:

Permanent Secretary bpaya@gov.bw

Deputy Permanent Secretary (Minerals)

nmmolawa@gov.bw