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Local Governments Losing Revenue from ASM Gold Mining Sites

Some of the women engaging in planning; a gold mining process where mercury is mixed with water. Photo by Josephine Nabaale

Some of the women engaging in planning; a gold mining process where mercury is mixed with water. Photo by Josephine Nabaale

In this part two of our artisanal miners’ series, we delve in the lack of a clear tax framework to generate revenues for local governments from artisan mining activities.   We analyze the potential amount of money local governments could generate, but are currently losing from Gold mining operations.

The Mining Score Card recently launched by ActionAid Uganda in partnership with Africa Centre for Mining Policy (ACEMP) and National Planning Authority (NPA) revealed that there is a weak reporting practice in the mining sector.

It also revealed that even though the mining sector has a great potential of contributing to economic growth and poverty alleviation in the country; less has been done to harness this.

The office of the Auditor General last year revealed in his Value-for-Money Audit report 2016 that government had lost at least 4.4 billion shillings (approx.1.3 million dollars) in uncollected mineral royalties in the last five years.

Currently, the government has embarked on undertaking review processes to update the relevant mining legislations. A Draft Green Paper on Mineral Policy is before the cabinet for review and the review of the Mining Act 2003 is yet to commence.

One of the proposed amendments is the regularization of artisanal mining in Uganda to legally recognize them; integrate them in formal tax arrangements; enable them qualify for social goods, services and infrastructure and to  increase revenues to local governments for proper managements. The consequences of under-regulation of artisan miners have wide ramifications and are far-reaching. It includes artisan miners not having access to social goods, services and infrastructure put in place by government; not being taxed appropriately; being prone to machinations by unscrupulous individuals in authorities; local governments not being able to realize their revenue collection targets; and being exposed to crime and conflicts.

The lack of clear sub-national taxation arrangements for artisan miners and utilization of revenue collected from artisan mining is denying local governments of much needed revenues. This is mainly not due to policy or legislative deficiencies, but more due to policy implementation and legislative enforcement.   Busoga region is rich in mineral resources particularly Aluminous clays, yttrium, and rare metals such as gallium and Scandium  estimated at $370 billion (about Shs942 trillion) by Kweri Investments, the company conducting Feasibility studies in the region. This wealth as mentioned in Part one; has attracted an influx of immigrants from all over the country and as far as Kenya who hope to tap into these resources.

According to Methuselah Batambuze, Community Development officer Buddaya sub-county, the population at Nabwala mining site before the  influx was about 2000 and the indigenous people were into agriculture. He however noted that in 2015, with the discovery of gold in that area, the population increased to over 10,000 people.

Batambuze adds that when the miners were convinced that gold was ‘finished’, some left in search for new mining sites.

“What you are seeing now are trucks taking the tailings to other places where they are processed using cyanide for better results,” he told Oil in Uganda

Majidu Musisi, who took part in the first exploration and exploitation for gold in the area in the early 1990s, says he has been at it for now 10 years and has made on average 4 million shillings a week on bad days and over 20 million shillings on good days.

“I have invested in real estate and own more than 5 commercial buildings in Bugiri Municipality,” subdued Musisi reveals to Oil in Uganda.

‘I have also created employment for all these people you see in this mining site,’’ he added pointing to hundreds of youth digging for gold around the site.

A simple analysis of the money made by Musisi in one week; at a conservative estimate of UGX 4 million a week, he makes UGX 16 million a month and UGX 192 million a year. He then shares this money with the people he has employed which to our surprise do not even add-up to 50% of the money Musisi earns.  A miner who works at the pit is paid a minimum wage of UGX. 25,000 a day. This money is not taxed because Musisi, like other artisanal miners, are still regarded as an illegal miner.

According to the Mining Act 2003, royalties are to be shared with mineral producing districts based on a basic revenue sharing schemes. The Second Schedule to the Mining Act stipulates that the central government is to take 80% of royalties collected and then distribute the remaining 20% as follows; 17% to “local governments” and 3% to “landowners or bona-fide occupants of land subject to mineral rights.”

This presupposes that central government would first collect the royalties before the local government can benefit from the contribution, implying that local governments do not have the right to tax/ collect the royalties. This is undermining revenue generation and social goods and services delivery at local government level. A failure on the part of central government to collect the royalties on time in the right amounts and distribute them accordingly to the beneficial local governments further worsens the revenue situation at local level. Consequently, local governments suffer financial deficiencies and stress.

The above cited revenue sharing scheme is common in mineral rich jurisdictions and therefore is a widely acceptable practice. However, whether it is the best practice for central government to first collect the royalties and then distribute them to the respective beneficiary district is not clear. We do appreciate that it is good practice to recognize the rights of landowners and bona-fide occupants of land where minerals are discovered and exploited. It is our opinion that local governments are given right to collect royalties and deduct what is due to them and remit that due to central government.

Our rough calculation indicates that if this money would, however, be taxed and royalties deducted, the district is to take 10 per cent of the revenues in royalties and it would generate about UGX. 19 million to its budget. This revenue contribution would be just from Musisi and assuming there are 100 other miners in Bugiri district making the same amount of money, it would be UGX. 1.9bn hence make significant contribution to the district budget.

According to the Bugiri district Budget Framework paper 2016/2017, the rest of the district’s UGX 21 billion shillings budget comes from government and donor programmes.

Interestingly, Musisi has never paid a single direct tax from the income derived from the sale of his gold to the ever available gold trading middlemen.

Just like in other mining areas Oil in Uganda has visited, the roads to the mining area where Musisi operates are impassable during the rainy season.

“If you are not round here and you want access my mining area, you cannot access it when you are not driving a four-wheeled car,” he warns.

Sadly, even the basic amenities like a pharmacy or clinic are not available for the miners who work there.

Some of these things would be solved through paying royalties as District revenues would increase.

According to Shafic Butanda, the Acting Community development Officer Bugiri District, in the more than 10 years small scale miners have been in Bugiri district, there has never been any contribution to the district budget from them ‘’Even right now we are going for a budget meeting but the briefing papers have mentioned the potential revenues that could be collected from gold mining’’ He adds.

Unfortunately, there has been no government plan to formalise Small scale mining in the country. And in Bugiri district there is no scheme to collect royalties since the law gives those powers to collect revenues to the government, which then shares with the district, the district officers say they were not even aware they could collect taxes from the small scale miners. Mr Shafic Butanda the Acting Community Development Officer says ‘’they will start looking into ways of raising money from the miners’

However, even in this, there appears to be an attempt to raise royalties from small-scale gold miners in the Neighbouring district of Namayingo, where according to the Banda Subcounty Chairperson Oguttu Bonaventure, they collect some ‘’little’ money from the miners at Nakuddi gold mining site. “What we collect is based on the same rates as the trading license for the shops in the sub-county which is still little money,’’ he says.

A Case study on revenue sharing schemes in the mining areas of Kabale and Moroto districts commissioned by Transparency International Uganda in 2015, found that while the districts complained of lack of information and erratic payment of their royalties share from government, even government itself doesn’t have enough information and depends on the disclosures of the miners to collect royalties, which in the case of small-scale miners is nonexistent.

This is because small scale miners are usually individuals who rent portions of land for mining from an individual, with an agreement to share what is found on the ground, this is what happens in Nabwala Bugiri district and Nakudi in Namayingo district. Taxing individuals has always been hard and there is an effort by various civil society organisations including ActionAid Uganda to help small-scale miners in Uganda form associations, help them acquire mining licenses and formalise their relationship with government.

This turn of events according to Mr Shafic Butanda, Community Development Officer of Bugiri district will prompt the district to look at creating a mining policy modelled on the National mining policy ‘’Maybe that way we can also help our people benefit from the minerals in the district,’’ he says.

We recommend that local governments are given right to collect royalties and deduct what is due to them and remit the rest to central government. This way local government will not starve of revenues.

Report by  Collins Hinamundi
Oil, Gas and Land reporter