Fiscal Regimes

12. Case study: Sierra Leone

Sierra Leone has substantial natural resource wealth with significant deposits of diamonds and iron ore plus bauxite, gold and rutile. Companies are exploring offshore oil, but no production is planned as of yet.

The policy-making apparatus in Sierra Leone includes the Ministry of Mines and Mineral Resources (MMMR), which is responsible for overall policy towards the mineral sector, and the Ministry of Finance and Economic Development (MoFED) which is responsible for tax policy including that for extractive industries. However, all significant mineral resource developments in Sierra Leone have special agreements with the Government of Sierra Leone. These include fiscal terms, which differ from that in legislation to varying extents. Currently, there is a mineral negotiating team comprising various actors including MoFED, MMMR which negotiates such agreements. These agreements are available from the website of the National Minerals Agency.

Royalties and income tax

Although the exact terms differ between contracts, the general approach is for royalties and corporate income tax to be the primary instruments for revenue collection. Whilst Sierra Leone’s legislation (Mines and Minerals Act 2009) sets out royalties as 5% for and 3%. Many companies are paying lower royalties than set out in legislation. Additionally, whilst corporate income tax is set at 30% in legislation, many companies have been granted more generous treatment, with corporate tax holidays prevalent.

Dedicated revenue unit

The collection of revenue from the sector is led by the National Revenue Authority, a semi-autonomous revenue collecting agency formally working under MoFED. Within the NRA, a special Extractive Industries Revenue Unit has been established in 2014 in order to take responsible for tax administration of the sector. Support has been provided by the IMF and Adam Smith International under a DFID funded project.

Their work overlaps with work completed by the National Minerals Agency, a regulatory agency set up in 2013 to manage licenses and ensure compliance with regulations. Co-ordinating activity between these two institutions is the ‘Extractive Industries Revenue Taskforce’, a powerful example of best practice in the area of extractive industry revenue administration. The Taskforce has been instrumental in major developments in recent years including the creation of an online repository detailing all mineral rights in country, a substantial step in mineral sector transparency.

Benchmarking governance

A recent initiative has been the Natural Resource Charter benchmarking process which evaluates extractives sector governance in Sierra Leone relative to the precepts of the charter. This has been an inclusive process including representatives from different parts of Sierra Leone’s Government as well as outsiders such as civil society and private sector.

Despite significant efforts by the Government of Sierra Leone, there are still significant problems facing revenue collection from the mining sector. This includes low prices being reported for iron ore exports, resulting from iron ore being sold to investors in the iron ore mines at discounted prices as part of offtake agreements. Resources are also an issue with the NRA being short of auditors with experience in mining revenue collection, and the absence of a laboratory to test the geological quality of resources.