Guinea Weighs Mine Tax-Incentive Review Over Investor Abuse

GUINEA, Capital Markets in Africa: Guinea’s government is considering reviewing tax breaks given to mining companies because foreign investors may be abusing the incentives, Budget Minister Mohamed Lamine Doumbouya said.

The West African nation, which has the world’s largest bauxite deposits, waived more than 2 trillion Guinean francs ($220 million) of income over the past five years because of exemptions on mining-equipment and building-material imports, Doumbouya said in an interview. While the mining industry is expanding at an annual rate of 23 percent, some of the tax breaks are affecting state revenue too severely, he said.

“The losses are enormous,” Doumbouya, 43, said in the capital, Conakry. “We have to verify if the companies respect the reason why they’re benefiting from the exemptions. The state may have to go back on its position.”

The nation of 12.6 million is counting on mining to revive its $6.7 billion economy that barely grew over the past two years because of the worst outbreak of Ebola. Guinea will pass Australia to become China’s main source of bauxite in 2017 as the International Aluminum Institute forecasts that shipments will reach 13 million metric tons this year, up from just 300,000 tons in 2015.

That recovery in exports is expected to offset Rio Tinto Group’s decision to delay the development of the $20 billion Simandou iron-ore project, Doumbouya said. Rio Tinto Chief Executive Officer Jean-Sebastien Jacques said last month there was “no obvious way” to develop Simandou after a global glut of iron-ore supply led to a slump in prices that remain about 70 percent below their 2011 peak.

Mining Code
Guinea was counting on the project to double the size of its economy and become the third-biggest exporter of the steel-making material. Abdoulaye Magassouba, the country’s mining minister, said in July he was working to make sure Rio couldn’t “freeze” the project.

“Simandou isn’t coming, but there are juniors who are showing that we don’t necessarily have to wait for major companies,” Doumbouya said. “Simandou will be good when it comes, but if there are other partners with whom we can work, we’ll do it.”

Guinea’s economy is forecast to expand 5.2 percent this year and 4.7 percent in 2017, he said. The International Monetary Fund in July forecast growth of 3.7 percent this year, from 0.1 percent in 2015, according to the World Bank.

Cutting Taxes
The government amended the mining code in 2013, cutting taxes on so-called industrial profit to 30 percent from 35 percent, and increasing the size of concessions. A previous version of the code was withdrawn amid concern about the tax rate.

Apart from mining, the government is also looking to the telecommunications and housing sectors to increase state revenue, Doumbouya said. The country faces a significant housing shortage while property taxes are poorly paid, he said.

“People require access to water, electricity and roads,” he said. Guinea needs returns “to allow the maintenance needed.”

The government will stop levying value-added tax on edible oils and flour next year while returning the rate on other goods to 18 percent after an increase to 20 percent this year, Doumbouya said.

“We want to increase revenues but tax levels shouldn’t be too high,” he said. “When taxes are too high, they’re killing the tax.”

 Source: Bloomberg Business News