Companies dealing in the refining or smelting of minerals in Uganda have up to 60 days to acquire licenses from the ministry of Energy and Mineral Development or face the prospect of doing time in prison, according to a public statement issued today.
The new rules come just over 10 years after Uganda witnessed the launch of the first gold refinery in the country, which changed the entire landscape on how the precious metal was traded.
With gold now Uganda’s number one export, government officials feel they have grown some spine to be able to make some strong demands and consolidate the sector into one industry.
With the new rules, the ministry of Energy and Mineral Development says that “all minerals’ processors, smelters and refiners are required to possess the relevant licenses to enable them carry out their activities legally in accordance with the current laws and also ensure compliance.”
For emphasis, the ministry added that “A person who carries out refining, smelting, processing, trading, storage and or any other activity without a valid mineral right, license or permit commits an offence and is liable, on conviction, to a fine not exceeding fifty thousand currency points or imprisonment not exceeding seven years or both.”
While the statement covers all minerals, there is little doubt that government is targeting gold refining companies. It is not hard to see why.
Revenues from gold exports accounted for more than $2 billion in 2022, the first time the $2 billion mark had been breached. The amounts continue to go up.
This strong growth can be largely attributed to the increase in gold refining companies in the country. Today, there are more than five gold refineries operating in the country. The growth of the gold refining industry has come with renewed government interest, pitting both sides in the eye of the storm.
For more than five years, government has brawled with gold refining companies over a series of issues – from tax to the ban on the exportation of raw gold. For example, when the government introduced taxes on the exportation of gold, whether refined or unprocessed, there was an aggressive pushback from the dealers in the market. So aggressive that for months official gold export receipts dropped to zero.
Government’s ban on the exportation of raw gold was somewhat interesting. Gold refining companies fully backed government’s move to try and stop the exportation of raw gold, hoping the resources would be channelled to their refineries. Exporters of raw gold, many of whom argued that the gold was sourced from outside the country and were simply passing through Uganda, felt the government was being unfair. The exporters explained that taxing gold that was not sourced in-country was against East Africa’s customs regulations.
Still, exporters of raw gold did not relent, even after the introduction of a 5 per cent tax on each kilo of gold. Raw gold is still exported out of Uganda.
It is the latest regulations from the ministry of Energy and Mineral Development that could reshape the precious metals refining industry.
Gold refining companies in Uganda have been operating under the manufacture under bond, which is acquired from the Uganda Revenue Authority. The manufacture under bond comes with a couple of incentives such as tax relief for certain items like imported machinery and raw materials.
All these benefits have now been wiped out as government orders the gold refiners to play by the new rules. Earlier attempts by government to compel gold refining companies to acquire licenses were rebuffed. The gold refining companies, through their association, said they were merely service companies and not involved in the exploration and production of minerals, and, therefore, requested to be treated differently. Government, it is now clear, has shunned that request.
According to Uganda’s new regulations, a mineral refining license will run up to five years, and will be renewable for three years at a time.
It is the conditions for one to acquire a mineral refining license where there is a catch. The new mineral refining licensing rules come with deeper government scrutiny of the businesses, offering more financial data on the state of the industry. For example, to be licensed, companies will have to submit a detailed statement of their assets and liabilities; certified copies of the balance sheet and profit and loss account of the previous financial year; a copy of the certified audited report, just to mention a few.
All this financial data of the businesses will give government an insight on the amount of tax that it will have to extract from the mineral refiners, and possibly offer insight of whether the volumes of the gold traded match the financial data that was submitted.
It is a delicate line that government is treading as this leaves the gold refining companies with a tough choice to make – open up your books or close your businesses. It is hard to see what option they will choose.
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