MINING LAW PRESENTATION

Special tax regime on mining companies in Namibia

By: Olavi Nangolo

*Sources consulted:

Ernst & Young: Practical Guide to tax in Namibia.

Income Tax Act.
Petroleum Taxation Act, 3 of 1991.
Petroleum (Extraction and Production) Act, 2 of 1991.
Minerals (Prospecting and Mining) Act, 33 of 1992.

1. INTRODUCTION
Companies subjected to the tax regime in Namibia include both those which are registered in
Namibia, and branches of foreign companies, which operate and/or derive their income from
within Namibia. A company which then falls within the regime has what is referred to in tax terms
as taxable identity
1.1.

Mining encompasses every method through which any mineral is won from the soil or
any substance constituent thereof.
1.2. Technically, mining also includes the extraction of oil and gas. However, the tax regime
peculiarly applicable to mining companies is broken down into two separate methods of
taxation:
1.1.2. That which applies to the so-called hardrock mines- mining operation other than
oil and gas extraction, i.e. gold, diamonds, base minerals, etc.
1.1.3. That which applies to the extraction of oil and gas.

2. HARDROCK MINES
Normal operating expenditure and capital allowances of a mine may be deducted against any other
income derived by a mine, subject to the following rules:

Exploration Expenditure

This form of expenditure includes all cost incurred and/or closely associated with exploration
operations, which include geological and geophysical surveys, as well as feasibility and
environmental impact assessment studies.
Such expenditure is only deductible the year in which the concerned mine commences production
for the first time. This is because exploration operations are of a preparatory or capital nature when
they are conducted by a mining company.
In the event that such a deduction exceeds income from mining operations for the year concerned,
it will be create an assessed loss for carry forward or for set-offs against other income-generating
activity of the concerned mine.

MINING LAW PRESENTATION

Special tax regime on mining companies in Namibia
By: Olavi Nangolo

Development Expenditure

Such expenditure include all expenses, be it operating or capital, incurred in connection with
development operations, i.e. shaft sinking, installation of machinery and other equipment, the
construction of production, conveyance and storage facilities, the construction of roads, etc.
Development expenditure is also carried forward to the concerned mines first year of production.
This accumulated development expenditure is paid off in three equal installments, starting in the
year of first production. Any development expenditure incurred thereafter (after the mines first
year of operation and/or production) is written off over three years, starting with the year in which
the year in which it was actually incurred. See section 36 of the Income Tax Act.

Operating Expenditure

Such normal operating expenditure does not fall under either exploration or development
expenditure, and are generally deductible as and when incurred.

Rehabilitation Expenditure

Any rehabilitation expenditure actually incurred during the year or for which provision has been
made with the approval of the Minister, is deductible. See section 18 of the Income Tax Act.

3. OIL & GAS EXTRACTION

The primary legislation that regulates the upstream petroleum industry in Namibia is the
Petroleum (Extraction and Production) Act and the Petroleum Taxation Act. These are often applied
in tandem with the Petroleum Laws Amendment Act of 1998.
Taxation of oil and gas mining operations is primarily provided for by the Petroleum Taxation Act,
the peculiar features of which are that it provides for the levying and collection of:
Petroleum Income tax (PTA)
Additional Profits tax
In terms of section 6 of the PTA, the rate of petroleum income tax is 35% of the taxable income
received by, accrued to, or in favor of, a person from a license are in connection with exploration,
development or production operations in that area.

Capital Expenditure

Capital Expenditure includes both exploration and development expenditure. All exploration and
development expenditure incurred prior to the first year of production (the year in which
petroleum is dealt with on a commercial basis) is accumulated and carried to the year of first
production.

MINING LAW PRESENTATION

Special tax regime on mining companies in Namibia
By: Olavi Nangolo
The accumulated expenditure is written off over the first three years of production in the following
manner:
All accumulated exploration expenditure incurred in or prior to the first year of production
will be deducted, plus one third of all accumulated development expenditure.
Two years after the first year of production, one third of development expenditure
accumulated will be deducted.
All accumulated exploration expenditure incurred after the year of first production will be
immediately deductible, and all other capital expenditure may be deducted in three equal
installments commencing in the year of incurral.
Assessed losses
Losses in any one year may be carried over to the succeeding year (indefinitely). This is because
losses in one license area may not be set off against taxable income earned in other license
areas or against income from other operations of the mining entity concerned.

Additional Profits Tax

This is the tax that is levied effectively on three cumulative cash flow positions- after normal
tax for the year, based on net cash receipts.
The net cash receipts is an amount made up from gross income less deductible operating,
exploration and development expenditure and petroleum tax payable for the year.
The cash flow positions for a year are the net cash receipts for the current year, adjusted if
such net receipts are negative, by a formulae Stipulated in section 19-20 of the PTA
*There is no withholding tax levied on dividends paid out of oil and gas revenues.
Royalties
Section 114 of the Minerals (Prospecting and Mining) Act 33 of 1992 provides that:
The rate of royalty for any rough and uncut mineral of the precious stone group is 10%
The rate for any rough unprocessed mineral of the dimension stone group is 5%
For any other mineral or group of minerals, the rate of royalty is less than 5%

Thank you.