Kenya Says Mine-Tax Increase Means No Hidden Duty for Companies

Feb 05, 2014 3:48 am ET

Feb. 5 (Bloomberg) -- Kenya’s decision to raise mining royalties simplifies payments because there are no additional or “hidden” duties that companies need to consider, Mining Secretary Najib Balala said.

The government of East Africa’s biggest economy on Aug. 1 as much as tripled royalty rates on some minerals, which the nation’s Chamber of Mines said will make the industry uncompetitive. The increase prevented Base Resources Ltd.’s Base Titanium unit from starting exports of rutile from its Kwale mineral-sands project in Kenya.

“The only tax we have is on royalties, we are not like other countries where you have a royalty and a mineral-export tax,” Balala said in an interview at the Investing in African Mining Indaba in Cape Town yesterday. “That’s why our royalty has gone up, because we don’t have additional hidden taxes. We want to have one simplified regime.”

Under the new plan, royalties on gold doubled to 5 percent, while the rates for rare-earth metals, niobium and titanium ores climbed to 10 percent from 3 percent, according to Ernst & Young LLP.

Base Titanium was among the companies whose permits Balala canceled last year. The 43 mining and exploration licenses that were annulled had been issued in the first five months of 2013, before and after national elections were held in March that year.

Base Titanium and Balala will meet this week to discuss royalties and permits.

‘Major Export’

“We have to support them so when they start exporting it will be done properly,” he said, referring to the planned shipments of rutile, a mineral used to make paint. “This will be our major export. It has to be done right so it doesn’t create any precedents in any other mineral.”

Kenya is the world’s third-biggest producer of soda ash, used in the manufacture of glass, and ranks seventh globally in output of fluorspar, used to make steel, according to the U.S. Geological Survey. The country also has deposits of gold, rubies and sapphires, though the mining industry represents less than 1 percent of its gross domestic product, according to the African Development Bank.

--Editors: Ana Monteiro, Paul Richardson