‘Incentives critical to  mining sector growth’

M alawi needs to come up with mine specific investment incentives to promote mineral exploration and mining to cushion investors in the sector regarded as  high risk, long-term and stable revenue generator, an expert has said.

By designing a benefit sharing threshold, minerals and geology expert Grain Malunga said it could help to attract investors in the mining sector.

In his paper titled ‘Proposed investment incentives for the mining sector, Malunga, who is also a fellow of the Institute of Materials, Minerals and Mining, UK and a fellow of the African Institute of Public Administration, Ghana, said that mining  has long periods of pre-production during which no revenue is earned.

To earn revenue, it depends on successful exploration, favourable commodity prices and a stable exchange rate, he said.

Said Malunga: “Generalised assumptions for the use of tax incentive programmes must be carefully analysed through mine specific considerations outside agriculture, manufacturing and tourism incentive lens. Commodity price risk can bring financial loss for producers and consumers.

“Global geopolitics has the ability to polarise nations leading to a decline in demand for new investments and marketability of mineral products.”

Malunga further observed that there is shortage of new experienced talent to replace the aging geologists and engineers, which also needs tax incentives such as short-term waiving of non-resident tax and tax on management fees to attract expatriate workers to train domestic staff.

“In cases where the mining sector is not encouraged, companies will avoid new investments or produce high-grade ores and shorten the life of the mines and create economic inefficiencies due to higher risk perceptions,” he said.

In Malawi, mineral resources are usually extracted by private companies and individuals. Government taxes these resources to receive a share of the value generated from their extraction.

Among others, the applicable taxes include a 30 to 35 percent corporate income tax, a 16.5 percent value added tax, a 20 percent withholding tax with a 10 percent withholding tax on dividends and a 10 percent non-resident tax.

There is also a 15 percent resource rent tax on profits, a 15 percent import customs and excise duties and a five percent royalties for industrial minerals, according to the paper.

Among others, applicable investment incentives in the minerals sector include start-up capital expenditure accrued within four years of mining license being granted, which is entitled to 100 percent allowance in the first year of assessment, but can be spread out over 10 years.

Malunga said losses can be carried forward for six years, duty-free importation of specialised goods for use in mining, stability period of 10 years from the time of project commissioning and a corporate tax holiday applicable upon approval of Minister of Finance.

He said the mining sector can also benefit from freezing of laws and regulations that are in force on the date of mining agreement, waiving of future tax policy changes that may increase the tax burden on the project and changes in the tax regime, five year-tax holidays and a refundable income tax credit for eligible individuals and corporations doing grassroots mineral exploration.

Minister of Mining Monica Chang’anamuno said in an interview yesterday that they are optimistic of improving the mining sector in the next five years through deliberate initiatives aimed at creating a conducive environment for investment.

She said government plans to promote the growth and sustainable development of the mineral sector “to stimulate exports and contribute to import substitution”.

Mining, which is part of the Agriculture, Mining and Tourism is touted as a sector that can help to grow the economy in the short to medium-term.

The sector contributes about one percent to the country’s economy.

The Ministry of Finance projects that the mining sector will experience growth in 2024 and 2025 of 5.8 percent and 6.7 percent, respectively, driven by the ministry’s efforts to formalise the Artisanal and Small-scale Miners Act, which is anticipated to boost production of gemstones and other minerals.