Rwanda is seeking to amend its mineral tax law with a view to to promote value addition for higher revenues and discourage the exportation of the valuable natural substances in raw form, according to a bill under scrutiny in parliament.

The draft law establishing tax on minerals seeks to replace the current law of 2013 on mineral taxes.

An explanatory note of the new bill points out that the existing law presents loopholes including inefficiency in promoting value addition to minerals as both exporters of processed and unprocessed minerals pay the same tax rates, which adversely affects the mineral smelters and refineries.

The new bill attempts to address this issue, among others, in line with the National Strategy for Transformation (NST1) target to attract investment in mineral processing and value addition in the mining sector and contribute to job creation.

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Below are six key proposed changes to the current law

Minerals exempted from tax

Samples of minerals exported for the purpose of essay, analysis or any other examination in such quantity as approved by the State organ in charge of minerals, are exempted from tax, the bill stipulates.

While this provision is like that in the current law, the bill extends the tax exemption to the processed minerals and imported minerals to be reexported, except gold, at exportation point.

The move, it indicated, is intended to address the current issue of taxing minerals sourced outside [for re-export purposes], which undermines positioning Rwanda as a mineral processing hub. This results from the fact that the existing legislation includes a single tax point (on export).

Gold for processing to get biggest tax cut than other minerals

Article 4 of the new bill (proposed) sets low rates of mining royalty tax applicable to minerals supplied to the local mineral processing facilities to encourage value addition.

The tax rates are 3 per cent of the norm value for base metals; two 2 per cent of the gross value for gemstones (minerals used in jewellery such as diamond); and 2 per cent of the norm value for platinum group metals.

Others are rare earth elements (high-tech metals such as uranium) that could attract a 2 per cent tax rate of the norm value, energy minerals (such as lithium and cobalt) with 3 per cent of the norm value; and the category of gold with 0.5 per cent of the norm value – which is the lowest proposed rate of all.

Gross value means the export value of minerals or value of minerals before deduction of any expenses by local mineral processing facility, while norm value means average monthly value of exported minerals, based on international market prices, excluding processing costs approved by the State organ in charge of minerals, according to interpretation in the bill.

As per the explanatory note of the bill, certain tax rates provided for under the existing law are excessively high, citing 6 per cent imposed on the norm value of gold which it said is considered punitive. It indicated that ‘this high rate is supposedly justified by the existing uncollectible and irrecoverable tax arrears.”

The existing law, under its article 5, provides for 4 per cent tax rate of the norm value for base metals; 6 per cent of the norm value for precious metals of gold category; and 6 per cent of the gross value for precious metals of diamond category.

You risk paying more tax if you export raw minerals

Meanwhile, article 5 of the bill (proposed) sets additional tax rates applicable to exported raw minerals to discourage such a practice.

The additional rates are 2 per cent of the norm value for base metals; 3 per cent of the gross value for gemstones (including diamond); 2 per cent of the norm value for platinum group metals, 1 per cent of the norm value for rare earth elements, 2 per cent of the norm value for energy minerals; and 0.5 per cent of the norm value for the category of gold.

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Expanding mineral tax base

The scope of taxable minerals in the current law is limited to base metals, precious metals of gold category and precious stones of diamond category, leaving out other categories of minerals.

Base metals are metals that oxidise or corrode easily when exposed to air or moisture and include copper, lead, zinc, nickel, aluminium, tin (cassiterite), iron, tungsten (wolfram), tantalum (coltan), and cobalt, among others.

The bill proposes an expansion of the tax base by covering minerals such as platinum group metals, and other gemstones apart from diamond category.

Obligation to withhold tax on minerals

The proposed article 6 of the bill imposes an obligation to withhold tax on minerals for local mineral processing facilities and exporters of minerals from Rwanda.

It however provides that such obligation doesn’t apply if the miner and the exporter constitute the same operator, stating that he rather pays both the mining royalty tax and the export tax.

Determining mineral processing charges

Under the bill, article 9 (proposed) provides that the determination of the grade, value and processing charges for minerals shall be done by a competent authority, which shall also establish a mechanism for they are set.

The development seeks to solve a case of unfair treatment whereby, during the determination of the tax base, the current law only considers the gross market value and ignores the mineral treatment charges incurred by the exporter.

Rwanda’s mineral export revenue rose to more than $1.1 billion (approx. Rwf1.4 trillion) in 2023, up from $772 million recorded in 2022, representing an increase of 43 per cent, while the target is to generate $1.5 billion by the end of 2024, according to Rwanda Mines, Petroleum and Gas Board.