TAXATION OF MINERALS & MINING

OPERATIONS
 OUTLINE
 Minerals and mining activities

 Taxation principles of minerals and mining operations

 Treatment of reconnaissance and prospecting before

commencement.

 Taxable incomes from minerals and mining

operations
 Allowable and non-allowable deductions from
minerals and mining operations

 Computation of capital allowance for minerals and

mining operations

 Treatment of finance cost

 Losses from minerals and mining operation

 Rehabilitation fund

 Withholding taxes relating to minerals and mining

operations

 Tax incentives in mining industry

MINERALS AND MINING ACTIVITIES
 Reconnaissance: It is the search for the mineral through
geological, geochemical, geophysical and other remote sensing
techniques but does not include pitting, trenching, drilling.

 Prospecting: It includes reconnaissance and operations to

determine the extent of deposit and economic value of the
minerals.

 Mining: It is the process of obtaining or extracting minerals

from a mine.
 TAXATION PRINCIPLES OF MINERALS
AND MINING OPERATIONS
 Introduction of the principle of ring-fencing to the mineral and
mining sector. By this, for instance, where a mining company
has more than one mine, each mine will be taxed on income
derived from the operations of that particular mine as if it were
a separate business entity.

 Arrangements between a separate mineral operation and any

other activity of the person conducting the mineral operation
are treated as though the arrangement is conducted between
persons in a controlled relationship.
 TREATMENT OF RECONNAISSANCE AND
PROSPECTING BEFORE COMMENCEMENT.
 Pre-mining cost, made up of both revenue and capital
expenditure in respect of reconnaissance and
prospecting, are to be put in a single pool.
 This expenditure shall not form part of the cost of the
assets of the person and a deduction of Capital allowance
shall not be allowed in respect of this expenditure.
 Deduct any consideration received from realisation of
depreciable or capital assets.
 The balance in the pool is to be carried forward from
year to year until commencement of production
 Where the balance is negative, it shall be
included in the income from mining operations.
 Capital allowance shall then be granted on the
balance in the pool when production
commences.
 Capital allowance should be calculated separately
for reconnaissance & prospecting
expenditure(both capital & revenue) and cost of
assets acquired.
 The following expenditures are not to be included in
the pool (pre-production cost):
 Domestic Expenditure e.g. provision of shelter, meals,
refreshment, entertainment or other leisure activities .
 Excluded expenditures e.g. Fines paid and penalties,
interest .
 Expenditure that fails to meet the General deductibility
principles that is Wholly, exclusively and necessarily
incurred and the arm’s length principle.
 An amount included in the computation of income.
INCOME FROM MINERALS AND MINING
OPERATIONS
Income from mineral operations include:
• Amount derived (Market value) from disposal of
minerals obtained.

• Compensation derived under an insurance policy

or in respect of loss or destruction of minerals
right.
• Amount derived in respect of sale of information
pertaining to the mineral operations or mineral
reserves.

• Gain from assignment or other disposal of an interest in

the mineral right with respect to which the operation is
conducted.

• Surplus in an approved rehabilitation fund.

• Any other amount derived during the year from
or incidental to the operation.

• Reimbursement cost and premium to a sole

risk party – a person that undertakes an activity
in mining operation which is originally meant
to be undertaken jointly.
 ALLOWABLE DEDUCTIONS FROM
MINERALS AND MINING OPERATIONS
 Ground rents
 Royalties paid in respect to mineral operation
 Capital allowance
 Contribution to and other expenses incurred in respect of
an approved rehabilitation fund for the mineral operation
 Expenses incurred in the course of closure of mining
operation, where rehabilitation fund is not available or
inadequate.
 Expenses incurred by the person for mineral operation that
are wholly, exclusively and necessarily incurred.
 NON-ALLOWABLE DEDUCTIONS FROM
MINERALS AND MINING OPERATIONS
Disallowable Deductions:
 Research and development expenditure
 Expenses that fail the deductibility Principle – Wholly,
exclusively and necessarily incurred.
 Expenses which contravene the arm’s length standard.
 Bonus payments in respect of the grant of the mining right
 Expenditure incurred due to a breach of an applicable
mining right.
 COMPUTATION OF CAPITAL ALLOWANCE FOR
MINERALS AND MINING OPERATIONS
 Capital or revenue expenditure incurred during the reconnaissance
and prospecting operations should be put in a separate pool and
capital allowance granted when production of commercial find
commences.
 Mining companies enjoy capital allowance at the rate of 20% using
straight line method on all their depreciable assets.
 Where an asset for which capital allowance has been granted is sold
or treated as disposed, the CG shall:
 Add the excess in the computation of assessable income if consideration
received is more than WDV of the assets.
 Grant additional capital allowance if consideration received is less than
WDV of the assets.
 Where an asset is being used in two separate mining
operations, the CG shall apportion the capital allowance in
proportion to the usage of the asset by each mining operation.

 Where a mineral right is assigned, the WDV of any capital

allowance expenditure of the assignor at the beginning of the
year shall be transferred to the assignee.

 Where part of a mineral right is assigned, the CG shall

apportion the WDV of the capital expenditure in proportion to
what has been assigned.
 TREATMENT OF FINANCE COST
 Financial costs incurred should only be allowed to
the extent that financial gains are included in
calculating the income.

 Normal financial cost shall be allowed to be

deducted.
LOSSES FROM MINERALS AND MINING
OPERATION
 Unrelieved losses shall be deducted in the order in
which they occur.

 Losses from the separate mineral operation may be

deducted only in calculating future income from that
operation and not income from any other activity

 The mining sector is a priority sector and the loss shall

be carried over for 5 years.
 REHABILITATION FUND

• Rehabilitation fund is exempt from tax.

• Surplus from rehabilitation fund shall be

added to income.
 WITHHOLDING TAXES RELATING TO
MINERALS AND MINING OPERATIONS
 A company that conducts a Mineral and Mining Operations shall
withhold tax in accordance with the Act.

 A company that conducts a Mineral Operations shall withhold tax at the

rate provided for in the Act when the person pays for unprocessed
precious minerals located in the Country or won from the country.

 Dividend paid by a company that conducts petroleum operations or is a

partner in a partnership that conducts petroleum operations is subject to
a final withholding tax of 8% regardless of the percentage of control.
 TAX INCENTIVES IN MINING INDUSTRY
 Capitalization of reconnaissance, prospecting and mining lease
cost.

 Employees exempted from taxation of benefit in kind when

accommodation is provided at site.

 Stability agreement

 Carried over losses for five years

 Exemption from custom duties in respect of plant and machinery

for mining operation.