Kagem spearheads new transparency measure on tax
Gemfields, which operates the Kagem emerald mine in Lufwanyama, is inviting governance bodies, mining organisations, industry observers and host governments to adopt the ‘G-Factor for Natural Resources’.
This is a new measure promoting greater transparency regarding the level of natural resource wealth shared with the governments of host countries.
The G-Factor for Natural Resources is intended to be an uncomplicated indicator of the percentage of a natural resource company’s revenue that is paid to the host country government in primary and direct taxes, plus – where the host government is a shareholder – dividends. As such, it is an indicator of the share of natural resource wealth paid to a host country’s government.
The G-Factor for Natural Resources is expressed as a percentage and is calculated by adding together mineral royalty tax, corporation tax and dividends paid by the reporting company to the host government. The total paid is then divided by the revenue of the company during the relevant period.
The G-Factor for Natural Resources takes its name from the “g’s” in “government”, “governance” and “good practice”, with a passing nod to “Gemfields”.
It could be calculated by each company engaged primarily in the extraction and sale of natural resources, whether in the mining, oil, gas, timber or fishing sectors, amongst others. Accordingly, multi-national natural resource companies would publish the G-Factor for Natural Resources for each operating subsidiary engaged in the extraction and sale of natural resources.
In launching the initiative, Gemfields recognises that no measure of this type is perfect and explains the G-Factor for Natural Resources is a “rule-of-thumb” that has broad application but is not suited to every situation.
Kagem and Gemfields CEO Sean Gilbertson said:
“In an era witnessing significant strides in transparency and governance, and where extensive reporting on so many facets of corporate activity is already required in the annual reports of public companies, it is surprising that practical parameters allowing more direct insight into, and comparison of, the sharing of natural resource wealth still elude us. We invite collaboration, input and support for the adoption of the ‘G-Factor for Natural Resources’ as a step forward. We hope it will be voluntarily adopted by other companies, insisted upon by host countries and incorporated into projects such as EITI.”
There are numerous additional and indirect taxes that are not included in the G-Factor for Natural Resources, but which further increase the contribution made to host nations by natural resource companies. Such taxes include area/surface charges, social security contributions, taxation on the salaries of employees, import and export duties and VAT. The variety and variations in natural resource deposits, types and occurrences lessens the ability to make direct comparisons between companies, said the company.
G-Factor for Natural Resources computations for Kagem emerald mine in Zambia, which is 75% owned by Gemfields and 25% by the Zambian Government’s Industrial Development Corporation, is set out below:
Kagem Chairman Dr Sixtus Mulenga summarised as follows:
“Transparency, legitimacy and integrity lie at the heart of Kagem’s operations in Zambia. We are proud of our contribution to the national economy through the taxes and dividends we pay to Government, the foreign exchange earnings we create, and the local employment we generate. The G-Factor for Natural Resources is an easily understood way to measure that input and we urge other corporates in the extractive sector to support this initiative as it will go a long way in showing the contribution each mining company and as a group the whole mining industry sector makes to the long term sustainable economic development of the Zambian economy.”
