African diamond producers turn to ATAF for assistance

“The story really is undervaluation of minerals. It’s a nonrenewable. If it’s gone, it’s gone forever. Tax authorities need to understand the industry. I found it scary, the stuff you have to know,” said Logan Wort, African Tax Administration Forum’s Executive secretary at an event organised by ATAF and Tax Inspectors Without Borders on 15 February 2018 on the margin of the First Global Conference of the Platform for Collaboration on Tax, at the UN Headquarters, New York.

Themed Diamonds: Uncut. The Base Erosion and Profit Shifting Challenges, the side event was addressed by Wort, Elfrieda Tamba, Commissioner General of Liberia Revenue Agency, the geologist Warren F. Boyd, William Nkitseng, a Director at the Botswana Unified Revenue Service, and chaired by James Karanja, Head of TIWB Secretariat.

Diamond producing and exporting countries face acute domestic resource mobilisation challenges, particularly in Africa, on account of challenges including tracking and valuation of diamond production. Accurate valuation of both rough and polished diamonds for export is essential in ensuring the producing country receives an appropriate share of the final price paid by jewellery buyers, other intermediaries and ultimately, retail customers.

For countries that are dependent on these precious stones, millions of dollars are at stake when assessing their value for tax purposes and this often represents a significant percentage of the tax base of diamond rich developing countries.

Wort said that ATAF has launched programmes aimed at providing the much-needed assistance to some of its member states experiencing this challenge, emphasising that the revenue received from diamonds is not only about taxation but also about ownership of those diamonds.

Both Botswana and Lesotho have approached ATAF for assistance, especially in tracking and valuation of diamonds, Wort said. While support to Lesotho will only begin this year, ATAF has been working with Botswana since 2016 on its diamond-related challenges.

According to Wort, Botswana’s problem in the diamond sector is twofold. First, a large portion of rough diamonds that haven’t yet been cut and polished are sold by Botswana companies to unrelated parties, but some end up being sold to related parties, he said. Foreign affiliates are also charging excessive royalties and marketing fees.

The second concern is that excessive losses are being declared by local companies in Botswana that are involved in the cut and polish process, probably due to undervaluation, according to Wort. “So it’s really a question of valuation — undervaluation on the one end, and then marketing and royalty fees on the other hand — that largely drives the losses,” he said.

The complexity of diamond valuation can be scary for Botswana’s United Revenue Service, said William Nkitseng, Director of its large taxpayer unit. The case Botswana is currently dealing with has forced the tax authority to realise how much it needed tax and diamond industry expertise, he said, which is why it turned to ATAF, the OECD, and the UNDP. While it’s too premature to sound the bell of success in that space, Botswana is very appreciative of the extra help, he added.

• Source: Stephanie Soong Johnston, Tax Administrators Tackle ‘BEPS Diamonds’ in Africa — Tax Notes
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