Developing a Tenable Fiscal Framework for Artisanal Small Scale Miners (ASMs) in Nigeria. NEITI's Perspective and Framework.

1. EXTRACTIVETRANSPARENCYACCOUNTABLITYGROWTH
Developing a Tenable
Fiscal Framework for
Artisanal Small Scale Miners
(ASMs)in Nigeria
Presented by
Chinenye Okechukwu

2. Mining in Nigeria is over 2,400 years old with initial mining taking place in the
form of artisanal mining as practiced by communities while searching for natural
resources within their environment for their social and economic benefits. This
was the case with the ancient civilizations as seen in the Nok Culture (340 BC), the
Igbo Ukwu bronze civilization (705 AD) Ife and Benin Bronze works flourished
between 1163–1200 AD and 1630–1648 AD, respectively, using basic clays, base
metals and gold amongst others.
Solid Minerals used to make a substantial contribution to Nigeria’s GDP up until
the early 1970s. In contrast today the sector accounts for less than 2% of
Nigeria’s income. This did not happen because the nation ran out of
commercially extractable mineral resource but because of poor implementation
of policies or even wrong policies in some instances. Crucial changes took place
in 2007, with the enactment of NMM act 2007 has laid an important foundation
for reviving the mining sector in Nigeria
History
BACKGROUND OF
SOLID MINERAL
SECTOR IN NIGERIA

3. Organized mining started in Nigeria around 1903 following the
commissioning of the minerals surveys of the Southern and Northern
protectorates in that year. Organized mining of cassiterite and its
associated minerals like tantalite and columbite started in 1905 by the
Royal Niger Company in Jos, Plateau State while Coal exploration and
mining commenced in 1906.
History in Nigeria

4. • The mineral sector in Nigeria is currently dominated by artisanal and
small-scale mining operations, mainly informal, working with
rudimentary methods and limited technical training, social provision or
environmental consideration. It is only in quarrying that large-scale
operations exist with the construction companies (stone aggregates and
laterite) and cement manufacturers (limestone, coal, etc) dominating.
• The desire by Government to diversify the national economy through
solid mineral exploitation amongst others, led to the creation of the
ministry of Solid Minerals Development in 1995, now Ministry of Mines
and Steel Development (MMSD) with the mandate of ensuring full
exploration and exploitation of the abundant solid mineral potentials of
the country.
• The Government’s wish to attract foreign investors to the Nigerian solid
mineral sector has resulted in the development of a road map to fast
track the development of the sector.
PRESENT STATE OF
THE SOLID MINERAL
SECTOR IN NIGERIA

5. FISCAL REGIMES
CENTRALOBJECTIVES/PRINCIPLES OF
• Provide Government with a revenue stream in all
production periods, but also possibly with an
increasing share of revenues as profitability
increases (progressivity)
• Be attractive enough to encourage investments,
now and in the long run
Ensure State as resource owner gets an ‘appropriate’ share – the
fiscal regime should:
Fiscal terms must be “robust” in the face of changing
circumstances : anticipate that the long term reality will be
different from current forecast

6. • Consistent with countries of similar prospectivity
• Encourage development of all viable discoveries
• Easy administration(for authorities) and compliance (for taxpayers)
• Establish by law … minimize discretionary and negotiated elements
• Stability and credibility
FISCAL REGIMES
CENTRALOBJECTIVES/PRINCIPLES OF

7. ROYALITIES
• Payment to the resource-owner (usually the state) for extracting the
mineral
• Most common (and often most important) levy on EI
• Attractive to governments because it secures revenue from the start
of production
• Considered easier to administer than most other fiscal instruments
(though in practice challenges exist)

8. • Royalties raise the marginal cost of extracting minerals (except for profit-
based royalties) and increase cut-off grade of the mineral
• Some countries have introduced sliding scale royalties where the
royalty rate is linked to the mineral price or profitability
• Investors perceive it as an additional cost to mineral extraction
• Most royalties take the form ad valorem tax, whose amount is based on the
value of a transaction or of property. It is typically imposed at the time of a
transaction, as in the case of a sales tax or value-added tax (VAT)
ROYALITIES

9. Latin America, Africa, some
Australian and US states
Ad valorem % of production value
Fixed charge per unit of
Specific some minerals, Indonesia
Most Canadian provinces,
Chile, Peru, Nevada (US),
Northern Territory (Australia),
South Africa
% of net income or other
measure of profit
Profit-based
% of production value based on a
Price-based Mongolia (repealed in 2010),
Zambia (repealed in 2009),
price scale Bolivia
Some Australian states for
production (pre-2009), China
Royalty Description Used in
DIFFERENT
TYPES OF
ROYALTIES

10. CORPORATE
INCOME TAX
(CIT)
• Share of profits, calculated under specific tax rules
• Statutory CIT rates usually apply but sometimes higher rates EI companies
(what is the extant rule?)
• Commonly applied to natural resource projects: consistent treatment across
sectors
• Creates creditable tax in home jurisdiction
But…
• Delay until CIT payments start
• Somewhat non-neutral – taxes the minimum return
• Debt bias – deduction for interest but not dividends
• Needs natural resource specific rules

11. VARIABLE
INCOME TAX
(VIT)
• VIT scheme uses the CIT base, but varies the rate of tax according to the ratio of
profits to gross revenues
• Developed first in the gold mining industry of South Africa, where the effective
tax rate may be lower or higher than the standard CIT rate
• Botswana, Uganda, Zambia also use the model
• The VIT is relatively simple but introduces distortions
– when a period of high accounting profit occurs early in the life of a project
causing tax to rise well before the required return has been earned

12. Based on the 1999 constitution the administration of all natural resources
including solid minerals is on the exclusive list, vesting the granting of licence,
royalty collection and general administration on the federal government.
LEGAL AND FISCAL REGIME

13. The primary legislation that regulates the Nigeria mining sector is the Minerals and
Mining Act, 2007. It governs and regulates all aspects of the exploration and
exploitation of solid minerals in Nigeria. It was enacted to deal with the short
comings associated with the Minerals and Mining Act, No. 34 of 1999. The Act
vested on the Federal Government of Nigeria the control, regulation and ownership
of all mineral resources therein.
The key provisions include:
i)Eligibility requirements for grant of mineral titles
ii)Establishment of the MCO
iii)Grant of a title on a ‘first come, first served’ basis
iv)Environmental considerations
v)Dispute resolution
vi)Incentives for investment
MINERALS AND
MINING ACT 2007

14. The National Minerals & Metals Policy 2008 is a product of Minerals and Mining Act 2007. It was
designed to provide a new direction of development for the sector by the government with a
view to enhancing performance through adequate regulation.
Some of the core objectives of the policy are to:
 Ensure compliance with environmental best practices and encourage a transparent mining
titles and permit regime;
 Promote linkage with the national economy through the enforcement of the use of domestic
metal products for the development of the nation’s infrastructure.
2008
The National Minerals
& Metals Policy 2008
2018
THE NATIONAL MINERALS AND METALS POLICY 2008

15. 2011 2018
NIGERIAN MINERALS AND MINING REGULATION 2011
2008
The Minister, in the exercise of his powers under the Minerals and Mining Act, 2007
issued the Nigerian Minerals and Mining Regulations 2011.
The objective of the regulation: is to ensure orderly and sustainable development of
Nigerian's mineral resources, create an enabling environment for foreign and
domestic investors by providing adequate infrastructure for mining activities and
identify areas where Government intervention is desirable in achieving policy goals in
mineral resources development.
The regulation set out the rules, procedures and processes for the acquisition of
mineral titles, thereby streamlining the procedures for granting licenses.
Nigerian Mineral
And Mining Regulation

16. 2014 2018
GUIDELINES ON MINERAL TITLES APPLICATION 2014
2008
The Guidelines on Mineral Titles Application was issued by MCO to enable it achieve
its responsibility of an efficient and effective administration and management of
mineral titles in Nigeria in accordance with the Minerals and Mining Act 2007. The
guidelines detail the different types of mineral titles, the requirements for the
application for these titles as well as a detailed outlook on the application
procedure and fees payable.
The following mineral titles are contained in the guidelines:
 Reconnaissance Permit
 Exploration License
 Mining Lease
 Quarry Lease
 Small Scale Mining Lease
 Water Use Permit
2011
Nigerian Mineral
And Mining Regulation

17. SOLID MINERAL DEVELOPMENT ROAD MAP
Vision:
• A globally competitive sector that would lead to wealth creation
• Drive for domestic industrialization & winning space in global market
• Realization of a value chain-based growth
Industrialization
Revenue
Generation
Cooperation
Job Creation
Transparency
IndustrializationSustainability
Projected outcomes:

18. ASMS IN
NIGERIA
• A large variety of minerals are mined across the country by a diverse group of
mining operators.
• Most mining activity within Nigeria is artisanal and small-scale mining,
performed by local miners without the benefit of the cutting-edge technology
of large conglomerates.
• Majority of workers in ASM exploit small deposits under labour intensive, low
paying and extremely hazardous conditions.
• ASM activities also significantly damage public health and the environment by
destroying the landscape and spreading pollutants.

20. • ASM when properly managed can help reduce poverty, increase foreign exchange
earnings and prevent rural to urban migration and environmental degradation.
• Proper legal and social support can turn ASM into a valuable source of economic and
sustainable development, particularly in rural areas.
• A considerable percentage of those employed in the ASM sector are women and
children.
• In Nigeria ASM is a poverty driven activity dominated by a large number of people who
are engaged in informal activities, bringing with it serious social and environmental
problems.
• Well-managed ASM has the potential to make meaningful contribution to the local
economy, such as poverty alleviation, especially in rural areas, reducing rural to urban
migration especially for the unemployed youth, maintaining the vital link between
people and the land, creating alternative economic activities, contributing to national
incomes and state revenues.
POTENTIALS
OF ASMs

21. FISCAL
REGIME IN
ASM
• Because of the informal nature of ASMs they don’t they don’t contribute much in
terms of payment of taxes/royalties.
• The fiscal regime for the solid mineral sector are governed by the provision of
minerals and mining act as well as CITA.
• There is a concise effort towards establishing a sector specific fiscal regime for
mining.

22. HOW CAN THE
ASMS
CONTRIBUTE
• Formation of ASM cooperatives: Under the Nigerian Minerals and Mining
Act of 2007 and its Regulations of 2011 artisanal miners are encouraged to
form cooperatives.
• The grouping of ASM into cooperatives is seen as a way of establishing and
defending ASM rights. It is a way of accessing supplies through collective
purchase, and to access materials or resources which may be restricted for
individuals. The cooperatives are registered in each state.
• The cooperatives also have to be registered at the ASM Department
(ASMD) in MMSD in order to receive Extension Services from the MMSD as
well as the Small Grant Scheme. There is fee for this registration.

23. • Formation and strengthening of buying centres: The Minerals and Mining Act
has the provision for the Government to establish buying centres and the
ASMD has licensed a number of centres in the main mining-related states.
• Some of the buying centres also provide assistance in processing such as
crushing and milling of rock deposits.
HOW CAN THE
ASMS
CONTRIBUTE
cntd.

24. CONCLUSION
• Due to the informal nature of ASMs, the only way of making them pay their
taxes is by formalizing them.
• When they are grouped under a registered cluster or cooperative they can be
able sensitized on the advantages of them paying their required taxes.
• Establishing of functional mineral buying centers, this centres would assist in
monitoring production and revenue collection from the ASMs.

25. THANKS!
QUESTIONS