Kwale slaps Base Titanium with Sh378m tax bill

What you need to know:

Base Titanium says paying the Kwale mining cess - charged at Sh5,000 per tonne of titanium exported - will see its operating costs shoot up by nearly half.
The company has contested the legitimacy of the levy saying mining falls under the domain of the national government and therefore counties do not have powers to tax it.
Base Titanium argues that such county levies are likely to hurt Kenya’s investment climate.

Kwale-based mining company Base Titanium is facing a Sh378 million tax bill from the county government, which it has however termed “illegitimate” with potential to hurt its performance.

The Australia-based mining company says paying the Kwale mining cess - charged at Sh5,000 per tonne of titanium exported - will see its operating costs shoot up by nearly half.

Base Titanium, a subsidiary of Australian Securities Exchange-listed Base Resources, has contested the legitimacy of the levy saying mining falls under the domain of the national government and therefore counties do not have powers to tax it.

“While Base disputes the legality of the Kwale mining levy, we fully support the notion that the county and its residents should benefit from its mineral wealth,” said Joe Schwarz, Base Titanium general manager in charge of external affairs and development, in a statement.

“At Sh5,000 per tonne the mining levy, if applied, would represent approximately 42 per cent of Base Titanium’s annual operation costs,” said Mr Schwarz.

The company made its first export shipment of titanium ore — rutile, ilmenite and zircon — in February last year. Total production from the Kwale project hit 131,873 dry metric tonnes (dmu) in December 2014.

Rutile is used in the manufacture of refractory ceramic, zirconium is mainly used in linings for furnaces, kilns, incinerators and reactors; while Ilmenite is mined for titanium dioxide production used as a base pigment in paint, paper and plastics.

The Kwale County Finance Act (2014) introduced a mining levy which imposes a charge of Sh5,000 per tonne of titanium exported.

READ: County mining tax plans anger Kenya government

Base Titanium has written to the Transition Authority (TA) seeking clarification on the levy.

“Minerals fall under the domain of the national government. As such the county government of Kwale is in breach of the Constitution by purporting to impose a mining levy on mining of titanium,” said TA chairman Kinuthia Wamwangi in a letter dated June 25, 2014 addressed to Kwale governor Salim Mvurya.

“We propose that the imposition of this levy should therefore be suspended,” Mr Wamwangi said.

Base Resources said it is currently in talks with both the Kwale county government and the national government to have the mining levy withdrawn.

“Base remains comfortable with its legal position and expects to have the matter resolved in the near future,” the company said.

President Uhuru Kenyatta declined to assent to the Mining Bill in December to allow further debate on sharing of mineral wealth.

The proposed law allocates 70 per cent of mining royalties to the national government, 20 per cent to the host county government and 10 per cent to the local community.

Base Titanium argues that such county levies are likely to hurt Kenya’s investment climate.

“The impact of Kwale County’s attempt to implement a mining levy on Base Titanium is to add an additional element of political risk to the project, which is reflected in damaged investor sentiment,” the mining company said.

The Kenya Association of Manufacturers (KAM), an industrialists’ lobby, said county governments have introduced multiple levies in an effort to raise revenue, increasing the cost of doing business.

KAM chief executive Betty Maina said that nearly all counties have introduced illegal fees and charges which the lobby sees as a tariff barrier.

“County governments are creating illegal trade barriers through introduction of numerous fees, charges and taxes, the latter being a violation of Article 209 of the constitution,” said Ms Maina in a protest note dated September 23, 2014 to the Commission for Revenue Allocation.

The Kilifi County Finance Act (2013) imposed a Sh70 per tonne salt cess while eying income from salt firms operating in the area such as Kensalt, Mombasa Salt, Krystaline, Kemu Salt, Malindi Salt and Kurawa.

High Court judge Isaac Lenaola in September last year stopped county governments from collecting agricultural cess following the repeal of the Agriculture Act and Local Government Act which provided for collection of cess by local authorities.