By: Dwight Links
Between 2020 and 2023, it was found that Namibia failed to adequately collect taxes from gold mining in line with its production.
This is according to the Office of the Auditor-General (OAG) through a recent performance report, which found that the Ministry of Mines’ Directorate of Mines and the Namibia Revenue Agency (NamRA) did not sufficiently collect taxes from gold mines in the country.
“The Ministry, through the Directorate of Mines, and NamRA have not fully fulfilled their responsibilities in collecting revenue from gold mining operations, revealing significant weaknesses in key areas for effective oversight and revenue recovery,” states the OAG.
The report covers a financial period spanning from the financial years of 2020/2021, 2021/2022, and 2022/2023.
With the initial focus on the directorate itself, which is the first point of contact between the gold mining sector and the Ministry, the OAG noted that the lack of proper mechanisms helping the Ministry minimise risk served as a red flag in itself.
“The audit finds that the directorate of mining did not provide evidence of risk identification for gold mines, as required by the Ministry of Mines & Energy Risk Framework,” the report highlights.
This means that there could be under-reporting taking place in the sector, stated the OAG report, adding that such gaps could lead to under-represented production volumes and sales, causing revenue loss to the State.
The second focus point was that the verification of production and income was key in assisting the overall governmental efforts in revenue collection from extraction activities.
“The audit found that the directorate did not implement the Standard Operating Procedure (SOP) for the verification process of monthly gold production,” noted the OAG, explaining that the required stock reconciliation formula (Closing Stock = Opening Stock + Production – Sales) was not applied.
According to the report, essential documents were also not obtained or reviewed by the government’s auditors. This means that the accuracy of the reporting could not be verified during the performance audit period.
“As a result, the accuracy, completeness, and validity of gold production figures submitted by mining companies could not be independently confirmed by the audit,” said the government auditors.
They noted that the primary cause was the absence of a structure verification checklist and the inconsistent application of SOP. Consequently, the directorate relied only on a summary rather than reviewing the underlying evidence, such as stock records, sales documentation, and detailed production logs from the country’s gold mines.
“These weaknesses significantly undermined regulatory oversight, increasing the risk of misreporting, manipulation, and undetected losses of gold stock. Consequently, the reliability of national production statistics and the accuracy of royalty assessments were compromised,” highlights the audit report.
According to the OAG’s findings, the absence of risk management procedures impairs the directorate’s ability to foresee, reduce and address risks unique to the gold industry. “[This] jeopardises its ability to maintain compliance, openness and maximum revenue generation in the gold mining subsector,” notes the OAG.
However, notes the report, the directorate could operationalise the Ministry’s Risk Framework and Policy of 31 August 2019. This, according to the auditors, could identify potential risks affecting the collection of expected state revenue.
Moreover, the auditors indicate that the matter of verification and risk assessment has dire consequences in the country’s efforts towards resource management.
“The weaknesses identified in the Directorate of Mines’ verification processes present serious risks to the integrity of Namibia’s mineral-revenue management system,” the auditors noted.
Thus, without an effective mechanism to confirm the accuracy of gold production data, the Ministry cannot assure the Parliament of Namibia or the broader public that the reported figures reflect the actual national gold output.
The report noted that the absence of ‘systematic verification’ weakens the Ministry’s ability to detect irregularities early, assess the compliance status of an operator, and to enforce accountability on the mining operators when necessary.
NAMRA’S ROLE
The report noted that NamRA indicated that transfer-pricing risk assessments are conducted on gold mining operations and that comprehensive tax audits are carried out concurrently on the gold production ecosystem.
The auditors, on the other hand, indicated that this is not backed up by any documentary evidence to support the agency’s claim.
“NamRA did not provide evidence to substantiate these assertions. As a result, the audit could not verify the activities and the original findings regarding gaps in oversight. And tax-audit coverage remains unchanged,” explained the auditors.
According to the report, NamRA did not conduct thorough tax audits on the financial accounts of gold mines, based on the interviews held with the agency’s officials.
The OAG stated that the agency’s failure to perform a thorough tax audit during this period constitutes a serious revenue oversight and reduces the efficacy of NamRA procedures of monitoring tax compliance.
Furthermore, the OAG raised concerns about NamRA’s capacity to identify and stop illegal financial flows, especially through related-party transactions that do not accurately reflect arm’s length pricing, adding that such weaknesses are fuelled by the absence of Transfer Pricing and Thin Capitalisation audits.
In addressing the complex tax risk associated with the extractive industry, the OAG advised NamRA to establish a systematic audit program aimed at such high-risk industries. The OAG said the program could also encourage improved cooperation between NamRA and the Directorate in obtaining production and royalty data for cross-verifications and to create sector-specific audit guidelines.
Moreover, it could strengthen tax compliance, encourage transparency in related-party transactions, and protect Namibia’s fiscal situation against illegal financial flows by enhancing risk-based audit capability and oversight mechanisms.
