State bets on digital tracking system to curb tax evasion in mining sector
Cabinet Secretary for Mining, Blue Economy and Maritime Affairs Salim Mvurya during the press conference in Nairobi on April 12, 2023. PHOTO | DENNIS ONSONGO | NMG
The State Department for Mining plans to instal a digital system to track mineral production, sales and royalties paid by mining companies in a bid to nab tax cheats.
The department says operations in the mining sector are continually getting more complex, fuelled by the growth of Kenya’s minerals portfolio and reserves as more mineral discoveries get underway but this has not been matched with increased royalties to the government.
The government now wants to procure a digital royalty management platform that will automate mineral production and sales data collection to monitor and reconcile royalty payments made by companies.
“Currently, most of these activities are carried out manually leading to players in the mining sector evading or underpaying royalty due to ineffective internal mechanisms at the ministry to track and enforce the payments,” says the department in tender documents.
“The digital royalty management platform to be implemented is expected to support efficient management of royalty thereby promoting the much-needed accountability, transparency and reporting.”
The system will mostly target artisanal and small-scale miners located in the remote parts of Kenya, many of whom the department says usually sell their minerals locally but do not pay royalties.
The State Department for Mining aims to boost mineral contributions to the gross domestic product from the current one percent to about 10 percent in the next seven years and enhance transparent governance.
A royalty is a compensation paid to the government by the mineral rights holders for the right to exploit mineral resources.
In Kenya, mineral royalties are charged on the gross sales value of the minerals based on the royalty rates set.
The department says it has made much progress on the digital mapping of mineral resources and rights holders through the aerial survey program and cadastre system but little on the automation and digitisation of the operational processes for mineral revenues collection, particularly royalty.
“The digital royalty management platform to be implemented is expected to support efficient management of royalty thereby promoting the much-needed accountability, transparency and reporting,” says the department.
Royalties on minerals sold to the domestic market are usually due within 60 days from the date of the transaction.
The State department says this credit period has resulted in low royalty collection from domestic sales due to a lack of adequate capacity and resources to enforce these deadlines.
Applicable penalties on late or defaulted payments have also been difficult to track or enforce.
Liability for royalty payment rests with the license holder. In case of royalty payment default by the miner, the liability cascades upwards to the next party in the value chain.
