THE government reportedly lost US$130 930 508 (about M1, 83 billion) in three financial years, 2009/10 to 2011/12 due to the failure by the Ministry of Mining to collect taxes from diamond mining companies.
This was revealed during the appearance of Mining ministry officials before the Public Accounts Committee (PAC) and the Natural Resources Committee (NRC) yesterday.
The ministry officials were summoned to appear before the two parliamentary committees to respond to issues emanating from the Auditor General’s report of 2014 concerning the non-collection of sales taxes from diamonds that were sold during that period.
Part of the Auditor General’s report for 2014 audit states that, “Section 17 of The Precious Stones Order No 24 of 1970 stipulates that ‘There shall be paid sales tax on the value of every diamond found in Lesotho and exported therefrom. The rate of sales tax shall be 15 percent of the market value of every diamond or such amount as the minister may from time to time by regulation prescribe”.
“Contrary to that requirement, diamond sales tax was stated at different percentages ranging from 4 percent to 8 percent instead of 15 percent in the mining leases.
“It was further established that mining companies did not pay diamond sales tax at all and sales tax totaling USD 130 930 508 for the three financial years 2009/10 to 2011/12 was due at the time of audit. It was recommended that management (at the Mining ministry) should ensure that all mining companies submit their tax payments evidence, failing which management should take necessary action to ensure that diamond sales tax was duly paid,” the audit report further states.
Commenting on the Auditor General’s report yesterday, the Commissioner of Mines Pheello Tjatja told the parliamentary committees that the Mining ministry has not been collecting diamond sales tax as stipulated by the Precious Stones Order of 1970. He said the ministry had only been collecting royalties as stipulated by the Mines and Minerals Act of 2005.
He said this was due to the assumption that the diamond sales tax provided for by the Precious Stones Order was the same thing as royalties as provided for by the Mines and Minerals Act of 2005.
“We believe that the auditor general did not realise that diamond sales tax is now known as a royalty, meaning that where we have indicated that we collected royalties, it is the same thing as the diamond sales tax,” Mr Tjatja said.
For her part, ‘Mamanti Matekane from the Auditor General’s office said the 1970 Order remained in force as it had never been repealed.
“According to the 1970 Order, the diamonds are evaluated at the mines before they are exported and their value is denoted in US dollar terms. We expect the mines to indicate the value of payable diamond sales tax to the government at that moment. According to the Order, diamond sales tax is charged at a rate of 15 percent.
“Royalties on the other hand, are paid when the mines have sold the diamonds for a definitive sales amount. Section 59 of the Mines and Minerals Act of 2005 indicates that precious stones will be charged at 10 percent while other minerals at three percent,” Ms Matekane said.
PAC chairperson Selibe Mochoboroane said it was unacceptable that the country lost so much money which should have been collected as diamond sales tax and that revenue could have come in handy given the country’s precarious financial position.
“It is clear that the 1970 Order was not repealed and the clauses that were not repealed were left intact because they were still serving their purpose. If the clauses were no longer needed, they would have been repealed and addressed under the Mines and Minerals Act of 2005.
“The existence of two different methods to collect the two taxes, was done purposely to have diamond sales tax at the rate of 15 percent and royalties of 10 percent for precious stones. And we have not been complying with the law. There is a lot of money we should have collected as a country from the mines that we did not.
“Even now when the country’s finances are under pressure, we are refusing to make use of this law that would have helped the country. We therefore ask you to comply with the laws,” Mr Mochoboroane said.
Ntahli Matete, the principal secretary in the ministry of mining promised the committee that his ministry would correct its mistakes as pointed out by the PAC.