Markets & Finance

Mining firm seeks Sh1.4bn tax refund from the Treasury

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Mr Simon Wall, Base Resources manager for external affairs, displays minerals produced at the Kwale County mine in January. Photo/FILE

Base Resources is claiming a Value Added Tax (Vat) refund of Sh1.4 billion from the Treasury for goods bought locally before the company started sales in March this year.

The refund claim and deferred taxes are related to losses incurred by the mining company during exploration.

“The group has classified an amount related to Kenyan VAT claimable on Kwale Project development as non-current due to the extended repayment timelines currently being experienced in Kenya,” said the Australian mining company.

The company joins a long queue of exporting firms making refund claims of more than Sh20 billion for the export of zero rated goods which allow producers to claim back VAT on inputs.

Last year, Base Resources reported a Sh565 million loss for its operations in Kwale compared to a Sh28 million loss in 2012. Its accumulated losses stood at Sh984 million as at end of last year leading to deferred taxes estimated at Sh76 million.

“These benefits (of deferred tax assets attributable to tax losses and exploration expenditure) will only be obtained if the company derives future assessable income of a nature and an amount sufficient to enable the benefit from the deductions for the loss and exploration expenditure to be realised,” said the company in its annual report.

The company did not account for deferred taxes because it had no guarantee of making profit in future, meaning Kenya could wait for a while to earn taxes from the venture.

The Australian-listed company has a maximum period of four years to recoup the tax losses but may appeal to the Treasury secretary for an extension.

The VAT claims and deferred taxes mean that the Treasury will have to wait longer before it starts relying on the mining sector for revenues.

As at the end of March the government’s total cumulative revenue amounted to Sh674 billion against a target of Sh727 billion, leaving it with a deficit of Sh53 billion.

The government has upgraded the mining sector to a full ministry from a department underlining its expectations of the previously ignored sector.
Base Resource is expected to start recording improved financial performance this year, having started exporting minerals.

The firm has exported zircon, ilmenite and rumite estimated to be worth over Sh1 billion from the beginning of the year. As at the end of March the miner had produced 68,193 tonnes of ilmenite, 8,743 tonnes of rutile and 356 tonnes of zircon. 

READ: Base Resources Kwale mine set for more exports

It had made two bulk shipments of ilmenite to China, estimated to be worth Sh730 million. In April it made its first shipment of rutile and zircon weighing 7,000 tonnes.

“Payment for the first ilmenite shipment was received in March and, with the commencement of rutile and zircon sales. Base will be generating positive operating cash flows in the next month,” said the company.

The firm estimates that the Kwale mines, with a lifespan of 13 years, will contribute tax revenues and royalties of Sh18.7 billion before it is exhausted.

It estimates to make a cash surplus of Sh60.2 billion ($700 million) from the project after repayment of its debts. The company borrowed (Sh14.6 billion) $170 million for the Kwale operations.

The project is expected to produce 330,000 tonnes of ilmenite a year, about 10 per cent of the global supply.

The mine will also churn out 80,000 tonnes of rutile per year or 14 per cent of global output, and a further 30,000 tonnes of zircon.

Zircon is currently estimated to be trading at Sh100,000 ($1,200) per tonne while rutile is at Sh50,000 ($575) per tonne. Ilmenite is trading at an estimated Sh23,000 ($275) per tonne.