August 13, 2012 / 4:45 PM / 5 years ago

S.Leone plans gold tax cut to curb smuggling

FREETOWN, Aug 13 (Reuters) - Sierra Leone plans to cut taxes on gold produced by small, individual miners nearly in half to reduce smuggling and boost exports, a year after the West African state did the same for diamonds, a top mining official told Reuters on Monday.

The move would undo part of a mining law drawn up in 2009 and backed by the International Monetary Fund. The law was meant to increase government revenue in the war-scarred country but instead backfired by triggering a slide in official exports.

“We have already suggested it, and we are working on it,” Jonathan Sharkah, director of mines, said of the plan to reduce taxes. “Maybe the next two months, three months we will do it.”

The proposed cut would bring export taxes on individually mined gold down to 3 percent from the current 5 percent, he said. The move would follow a cut on individually mined diamonds to 3 percent in March 2011 from the previous 6.5 percent.

Sierra Leone, struggling to rebuild from a civil war that ended a decade ago, depends heavily on minerals exports to fill state coffers, with diamonds traditionally the country’s top revenue earner.

Its gold sector, which has attracted the interest of industrial miner Cluff Gold, is relatively small. Official exports totalled nearly $9 million worth of the precious metal in 2010, all of it from small individual operations.

Taxes on industrial gold exports, which have yet to begin, are expected to remain at 5 percent.

Sharkah said the efforts to reduce export taxes on small miners followed a dramatic slump in official exports - probably due to smuggling - after the tax hikes went into effect in December 2010.

According to documents provided to Reuters by Sierra Leone’s Government Gold and Diamond Office (GGDO), Sierra Leone’s diamond exports dropped in half to 18,609 carats in December 2010.

“We tried for the diamonds and it didn’t work. We had to go back to 3 percent,” Sharkah explained, adding that exporters hoarded gems during the brief period the duty was higher.

According to GGDO documents, total gold exports for 2010 were 270,265.03 grams and slumped to a total of 167,150.42 grams in 2011.

“With artisanal miners all over the bushes, we just cannot control them, they can smuggle,” Jonathan Sharkah said.

Sierra Leone, which is headed to the polls for a presidential election in November, late last year began commercial exports of iron ore, which has overtaken diamonds as its top revenue earner.

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