Editorial with Marcel Chimwala – Clean up the mess in extractive revenue management

EDITORIAL with Marcel Chimwala

Clean up the mess in extractive revenue management

The recently released Malawi Extractives Industry Transparency Initiative (MWEITI) report says Malawi is failing to maximize revenue collection from extractives sector as some mining companies are evading ground rent for their concession areas while government is falling short in enforcing mineral royalties remittance, a situation which is leading to loss of revenue by the State.

As reported in our lead article, the country’s second EITI report, which was officially launched on October 17, 2018 at Capital Hotel in Lilongwe, points at glaring weaknesses in revenue administration that mostly involve non-collection of non-tax payments such as ground rent and royalties by Department of Mines (DoM).

The report mentions names of some of the companies that have not been remitting royalties and ground rents to the Department but no reason has been given as to why these entities have not been giving what is due to the State and why authorities mandated to enforce such payments have remained inert.

For years, the report also indicates that the DoM has not been collecting the 2.5% sales royalty of the highly-valued cut and polished corundum from Nyala Mines Ltd sold by the US-based Columbia Gem House Inc. despite the company reporting exports of up to 432 Kg of the precious minerals in the 2014/15 financial year alone.

The 193-page report attributes this upshot to, among other factors, Mines Department’s lack of required resources to carry out audits in order to estimate the sales’ royalties due.

It also notes that the current legislations have no specified basis for charging royalties either based on production amounts or the selling price.

We feel the report should be a wake-up call for Capital Hill to sober up things at the Department of Mines, which is responsible for collection of this non-tax revenue from the minerals sector.

The government can correct the situation by, among other things, increasing financial allocation to the Department and establishing District Mines Offices.

It is unfortunate that since the first multiparty government in 1994 our leaders have been making noise about diversifying the country’s economy to embrace mining as a key economic sector but there is nothing to show on the ground.

Departments of Mines and Geological Survey, which are key to uplifting the sector, continue to suffer from lack of adequate funding for their operations as the government is spending whooping sums of money on agricultural subsidies.

We do not need to prove this underfunding to these important Departments further as the fact that the Department of Mines headquarters in Lilongwe was closed earlier this month for failure to pay rental arrears amounting to K7-million is clear testimony.

As the saying goes, you reap where you sow, the government has to understand that there is no way the country can adequately benefit from the mining sector if funding to these Departments remains low with officers left to play bawo instead of going to the field to inspect mining operations.

The result of such negligence by the government are there for all of us to see;   failure by the companies to pay ground rent and royalties and illegal mining in Mangochi, Lilongwe, Ntcheu, Balaka and other areas.

Of course, after the people in Mangochi demonstrated and presented a petition to government on illegal mining, State President Arthur Peter Mutharika has intervened and deployed the Malawi Defence Force which has arrested the miners and handed them to police.

However, this is not a lasting solution. The lasting solution should be for the government to provide funds to the DoM to send its officers to license the illegal miners and start taxing them.

Equally with adequate funding, the DoM would be in a position to establish District Mining Offices to scale up revenue collection from artisanal and small scale miners in the districts so that even brick molders and  sand miners who have a hand in environmental degradation pay to obtain permits from the government.

Otherwise with the current status quo, it will not be surprising to see customary land owners continue doing the work of the DoM by allocating plots to illegal miners and a number of companies continue dodging the payment of royalties and ground rent without being questioned.

***

This piece was initially published in Malawi’s Mining & Trade Review Issue Number 67 (November 2018). This monthly publication is edited by Marcel Chimwala.

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