Mining and Petroleum Tax Lecture Notes in ppt

1. Mining and Petroleum Tax
By:Alemu Taye (Asst. Prof.)
Debre Markos University
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2.  Mineral: a naturally occurring useful substance with definite
chemical composition and consistent physical properties.
 Mining: the process of obtaining useful minerals from the earth’s
crust.
 Mining operations generally progress through four stages:
 Prospecting: the search for mineral deposits
 Exploration: the work involved in assessing the size, shape,
location, and economic value of the deposit
 Development: the work of preparing access to the deposit so
that the minerals can be extracted from it
 Exploitation: the work of extracting the minerals
 Mining is a money-spinning but hazardous and risky occupation
 Minimum cost, maximum yield, least danger methods of
mining are chosen
 Legislations have set numerous operating standards
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3. ◦ There is an abundant mineral resources
◦ The mining sector (exploration and extraction of minerals) is one
of the priority but underdeveloped sector.
◦ Mineral resources are the property of the State and the People.
 The government-The Ministry of Mines- as the custodian of
mineral resources, act through licensing (control and administer
the resources).
 The country has adopted production sharing as a basis for its
engagement with private companies especially for oil and gas.
 Currently, many foreign and some local companies have been
granted the license and are in operation.
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4.  The Mining is governed by independent legal regime (characterized by several
amendments and re-enactments).
 The main Investment and income tax proclamations do not apply to
mining activities.
 The first modern mining law in Ethiopia was issued in 1971 and amended in
1974, 1986, 1993 and 2010 with a view to improve the legal framework and
create a conducive environment for both local and foreign investors
 The current Mining Operations Proclamation No. 678/2010
 It broaden the range of mining licences available (Non-exclusive
reconnaissance licence, Exploration licence , Retention licence , Small and
large scale mining licences, and Artisanal mining licence
 It require environmental impact assessments and regulates health and safety
matters.
 It brought legislative incentives such as lower royalty payment levels,
exemption from customs duty and taxes on mining equipment, guarantees
in respect of the right to sell minerals locally or abroad and the availability
of dispute resolution procedures, such as arbitration.
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5.  Formerly, taxation of mining activities was regulated by the
Petroleum and mining income tax laws, which exhibit substantial
affinities.
 In 1986, the Government introduced a special income tax for
companies involved in petroleum exploration and extraction
anticipating revenue from the sector.
 In 1993, the mining income tax law was introduced with
substantial resemblance to the petroleum income tax law of 1993,
except its scope of application to the exploration and extraction of
all kinds of minerals save that of petroleum.
 The Federal Government has the constitutional mandate to
 administer mining income tax over large-scale mining activities
(mainly companies) and the
 Regional Governments administer the tax over small-scale mining
activities, including mining at rtisanal levels.
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6.  Taxation
 As a sui generis income tax law, it has its own definitions of
taxable income, gross income, expenditure and deductibles.
 Please read arts. 36 – 44 and discuss statutory contrasts.
◦ Taxation of mining activities is governed by Mining Income Tax
Proclamation No. 53/1993, as amended (Proclamation No. 23/1996).
◦ Holder of mining license is required to pay royalty based on the scale price of
the commercial transactions of the minerals produced. The rate of payment
ranges from 8% (for precious minerals) and 2% (geothermal).
◦ Holder of large scale or small scale mining license pays tax at 35%. Artisanal
mining is exempted from income tax. Taxable income is computed by
subtracting from gross income for the accounting year in question all
allowable revenue expenditure, depreciation, reinvestment deduction and
permitted losses. Income taxes are calculated for each accounting year and
paid within 90 days after the end of such year.
◦ Tax is payable on dividends declared and distributed from taxable income
after deduction of income tax. The tax on dividends is imposed at a rate of
10%. The licensee is the withholding agent and is required to pay the tax
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7.  The mining and mining income tax laws and regulation constitute the following
particular proclamations and regulations:
 Mining Proclamation No 52/1993, with its amendment proclamations
(Proclamations Number 22/1996 and 118/1998),
 Mining Income Tax Proclamation No. 53/1993, with its amendment
proclamation No. 23/1996, and
 Mining Regulations No. 182/1994, with its amendment i.e. Mining
(Amendment) Regulations No. 27/1998.
 The following are the highlights of the new Mining Operations Proclamation
678/2010.
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