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Experience of Mining Tax Reforms and Renegotiation of Mining Contracts:

TWN Africa has published a report on Tax reforms in the Mining Sector in the DRC

This report analyses the two major reforms in the Congolese mining sector. The mining sector in the Congo was fraught with several challenges, limiting its capacity. Because of this, two major reforms, namely, the 2002 Mining Code and the 2012 mining legislation reform, were introduced to improve the sector’s governance and to increase its contribution to Congo’s economic development. The reforms proposed renegotiation of contracts between the State and private mining companies; along with adjustment of tax regimes for the mining companies. This was to rectify contract and revenue distribution imbalances. In 2002, the first reform came into being with a reform legislation that made notable changes within the sector and formed the basis for new legislation. The new legislation offered generous incentives; it initiated rapid and transparent procedures for granting mining or quarrying rights. And it organized the tax, customs and exchange regime.

The stabilized tax regime in the 2002 Mining Code motivated many investors to invest in the DRC. The country has since recorded about twenty mining projects already in production. Further, there are about one hundred more mining projects under construction. The 2002 Mining Code put in place a single tax and custom duties regime; this applied to all the operators in the mining industry including small-scale miners. The code made no exceptions regarding the nature or duration of mining title. It was based on the principle of maximization of State revenue. This attractive tax and custom duties regime adapted to the realities of the
sector. Beyond considering the specific and peculiar conditions in the mining industry, this regime also ensured the taxation system adapted to the phases of a mining project. The 2002 Mining Code replaced the tax system under the Legislative Order No. 81-013 of April 1981. The Legislative Order had negative effects on the profitability and growth of mining
investments. Ten years after the enactment of the 2002 law, the government initiated a new reform to amend the tax regime. In 2012, the government sought to raise the rates and base of various taxes and royalties in the sector. The draft Law is yet to be discussed in Parliament though.

Although the proposed amendment emerged from a tripartite negotiation – government, private sector and civil society, it faces strong opposition from the private sector. The private sector considers the proposed taxes as high.

The second reforms had to do with the renegotiation of mining contracts. In 2008, the government initiated a process to review 63 mining contracts and agreements. The review tried to rectify obvious imbalances in each contract. This review was conducted by an inter-ministerial commission which included experts from public institutions. A renegotiation
process followed the review of the contracts. Chaired by a Minister of State and President of the Economic Commission of the Government, a panel of nine government officials led the renegotiation process. After the renegotiation process, the government recouped over US$3
million. The parties renegotiated the distribution of share capital and royalties for public mining companies. Further, the renegotiations established government participation in the day-to-day management of partnerships.

However, several challenges were observed; key amongst them were lack of capacity and expertise for the renegotiation of contracts, and reluctance of some partners to renegotiate with government. It is worth noting the conditions under which these two reforms were
initiated. The 2002 tax regime was established when the Congolese Mining Sector was nearly at total collapse. The 2012 mining legislation reform, however, was initiated when the mining sector was full-grown. In 2012, the sector produced close to one million tons of copper. There was a significant increase in the production of gold and an extraordinary increase in the production of cobalt, making the DRC the leading producer in the world. After the renegotiation, which in principle ended in 2010, investors felt reassured to inject their capital. This led to the noticeable increase in minerals production. However, the imbalance lies between investors and state-owned mining companies, which had transferred their
mining rights to partnerships or joint ventures.

To read the full report please click HERE