IMF Identifies Possible Revenue Leakage In Botswana Mining Sector DESIGN NOTES Photo: Diamond Sorting Pull Quote:


A recent study of the mining sector in Africa by the International Monetary Fund (IMF) has indicated that multinational mining companies operating in Botswana could be involved in transfer mispricing of their imported inputs and mineral exports, a development which encourages illicit financial outflows from developing countries.
According to the study Botswana is among countries which could be losing substantial revenues through the mispricing by multinational mining companies.
IMF has revealed that while mineral-rich countries are implementing regulations to prevent revenue leakages, enforcement of transfer mispricing rules in majority of African countries including Botswana are lacking. According to IMF Botswana has no legislation and regulations which guard against revenue leakage via improper pricing and the current government in the country does not require effective documentation of records and annual disclosures by the mining companies for effective audits to detect the mispricing of goods.
IMF has indicated that it is essential for governments to have legislations which require multinational mining companies to disclose information which assist in pricing reviews. “In practice, it is not uncommon for some taxpayers to play the ‘deny-delay-defeat’ game response, whereby the tax administration is told that the information they require to do a proper pricing risk review or audit of the company is not held in that jurisdiction, but held in a foreign country, and that approval of another company up the chain is required for its release to the tax administration,” states the IMF,  indicating that it is also not uncommon for tax administrations to be told that some of the information requested is of a confidential nature and cannot be disclosed. “Acquiring this information can take some time, create delays or even be met with legal challenges on the basis that the company is not required to keep that type of information or that the tax administration has no right to enforce that the information be provided. Unfortunately, this approach may make it difficult to complete a timely and effective audit.”
IMF says the diamond industry is vulnerable to mispricing, “Diamond mining poses a high level of pricing risk in Africa due to the complexity in valuing the vast array of diamond qualities, and the consequent wide range in the pricing structure per carat. Because of the specialized nature of the classification process of the large number of valuation criteria and consequently of possible quality combinations, there can be significant differences from valuator to valuator. This makes the job of a government diamond valuator very difficult, in checking whether the diamonds for export are appropriately valued.”