Mining

How Uganda Gold Dealers, Government Locked Horns Over New Tax

DEI – Uganda has introduced new financial regulations for its precious metals industry, slapping a tax levy of $200 per kilogram of refined gold exported out of the country, and a 5 per cent tax rate on every kilo of unprocessed gold.

The new levy represents government’s most aggressive pursuit of revenue from one of the largest export earners in Uganda today.

In signing the Mining and Minerals (Export Levy on Refined Gold) Regulations 2023, Ruth Nankabirwa, the Minister of Energy and Mineral Development, ended nearly two years of protracted negotiations with gold exporters, which, at one point, saw gold exports dropping to zero for months.

Uganda has about five gold refineries. These refineries were responsible for the export of gold worth more than $2 billion in the year to March 2021 – the biggest export for the country. These figures blew away government. And they attracted the attention of the taxman – the Uganda Revenue Authority (URA).

For years, tax revenues from Uganda’s mining sector – leave alone gold alone – were too negligible to make any difference in government’s fiscal plans. A 7 per cent tax on gold ore was nothing beyond a footnote on URA’s annual collection report.

Part of the reason as to why the mining industry contributed little to Uganda’s tax revenue kitty was because of the weak government supervision and the failure to discover a major mine that can attract investments in the country.

Gold refineries changed that.

As a low-hanging fruit, government, in the second quarter of 2021, proposed a raft of tax measures: a 5 per cent levy would be imposed on the value of each kilo of refined gold to be exported, and a 10 per cent levy for the same on unprocessed gold.

It was a suggestion that threw gold exporters off-balance. Some of the people who took part in these negotiations came from the URA, the Ministry of Energy, and a top law firm in town. At some point, it also sucked in President Yoweri Museveni.

Under their umbrella body of the Gold Refiners, Exporters, and Dealers Association of Uganda (GREDAU) the traders petitioned government to think through their decision. At some point, the association asked for the rates to be revised to $200 dollars per kilo of refined gold, and 1 per cent for the value of each kilo of unprocessed gold.

John Musinguzi Rujoki, URA Commissioner General (3rd L) poses with members of GREDAU after signing an MoU with the association last month

It was a delicate negotiation because of the nature of the business. Most of the gold was simply being re-exported, with its origin coming from neighbouring countries such as DR Congo.

The gold traders quietly questioned why Uganda was hell-bent on imposing such a high tax rate on a product it was aware was not its own.

With the government not budging to these demands, gold exports nosedived to zero during much of the second half of 2021. Uganda’s exchange rate system faced some fluctuations during this time, ruffling the prices of key products such as petroleum.

It was a strong protest to government.

There was another fear; that gold dealers were going to coil back into their black-market shells, and engage in off-book deals in a widespread smuggling racket that would deny the country the much-needed tax revenue.

In December 2021, government somewhat relented to the demand of $200 on a kilo of refined gold. Negotiations over the unprocessed gold continued. A few months after, export figures of gold appeared on government data. Also, government agreed to knock down the tax on raw gold to 5 per cent of the value of a kilo.

Now, questions abound on who the winners and the losers of these negotiations are. A number of people feel that the fixed levy of $200 on each kilo of gold is peanuts, especially for a product whose price on the international market has usually appreciated over the years (currently trading at about $58,000 per kilogram).

However, others feel that the gold exporters bring more to the table – capital, skills and knowledge transfer, and the payment of other forms of taxes such as Pay As You Earn (PAYE).

The nearly two years of negotiations have also offered new perspective to government on how to extract more revenue out of the mining industry.

Nankabirwa said recently that “the government is currently reviewing a minerals revenue strategy (royalty-tax regime) to ensure optimal benefits for all stakeholders in the mining and profit- sharing across the value chain for both the investor and the country.

The proposed initiatives may include production sharing, state-equity participation or a levy-tax structure.”

Government might not have achieved its initial tax demands on gold exports, but there is no doubt that the last two years have re-energised the cabinet to start thinking critically on how to broaden its tax base, with the mining industry being a lucrative target.

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Deep Earth
Deep Earth International critically examines developments in the extractive and energy sectors in Uganda and the wider East African region. Drawing from the vast experience of its founders who have each covered and written about these sectors for at least fifteen years, this website is the go-to platform for anyone seeking to get a better understanding of the same.

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