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Auditor General reveals how mining companies under-declare tax dues

By Benard Sanga | Updated Thu, August 25th 2016 at 00:00 GMT +3
Kenya's Auditor General Edward Ouko (left), with his Ugandan and South Sudan counterparts John Muwanga (centre) and Stephen Wondu during a forum that brought together auditors from across the globe. [PHOTO: GIDEON MAUNDU/STANDARD].

Auditor General Edward Ouko has publicly admitted that his office encounters resistance in accessing information from mining and extractive industries in Kenya for audit.

Ouko said yesterday the extractive industry in the country was shrouded in secrecy and that the country could lose out in revenue due to difficulties to determine the qualities or costs of these natural resources.

“Lack of policy in the audit of extractive industries poses a challenge for auditors to access the needed oil and gas information for audit, to enable them come up with good and implementable audit recommendations which can improve services to citizens,” said Ouko.

He added that this had made it difficult for his office to know the quantity of minerals extracted and costs incurred to determine whether the mining firms are adhering to revenue agreements signed with the Government.

“I want to reiterate that my office will ensure that these companies only recover the costs that they incur and we need to work together with the Ministry of Energy and Petroleum and the revenue authorities to achieve this,” explained the Country’s chief auditor.

Speaking during the opening of annual meeting of International Organisation of Supreme Audit Institutions (INTOSAI) at Pride Inn Hotel in Mombasa, Ouko said the country lacks a policy on extractive industry.

The organisation has brought top auditors from over 20 countries to discuss and equip auditors to monitor the mining industry, which has been a source of conflict in many parts of Africa in what has come to be called ‘the mineral curse’.

“We are grappling with how we will chase the revenue from this industry. We have assembled a group of auditors tasked to audit the sector to make sure the resources lead to sustainable development of the country,” said Ouko.

Already, a team of auditors in the Office of the Auditor General has been assembled and were currently monitoring the cost of exploration activities and how it will impact revenue.

Ouko said Kenya has limited technical capacity in the audit of extractive industries and is at the risk of losing the few specialized staff to other sectors in the economy.

Mining Principal Secretary Dr Ibrahim Mohamed said the ministry was developing regulations to operationalise the Act but added that secrecy in the sector could affect projected revenues from the sector.

“A coherent national policy on extractives is being developed to ensure accountability in the sector. We are determined to make sure that the mining firms adhere to the revue agreements,” said Mohamed.

In May, President Uhuru Kenyatta assented to the Kenya Mining Act 2016 to spur the country’s nascent extractive sector which current government estimates indicate the sector contributed just one per cent to Kenya’s Gross Domestic Product (GDP).

The Act stipulates that 70 per cent of the revenue will go to the national government, 20 per cent to the county government and 10 per cent to the community.

But other auditors said although Kenya has spelt out on how mineral royalties will be shared, questions still arise on how it will distribute, especially for the 20 percent and 10 percent to the counties and communities respectively.

“The question is in such a distribution formula: how will you make sure that the 10 per cent for the community is utilised correctly? Will you send the money to the community or will you build roads for them? In my country, although we have such arrangement mineral areas still remain the poorest regions,” said Southern Sudan Auditor General Ambassador Stephen Wondu.

INTOSIA chairman and Ugandan Auditor General, Mr John Muwanga, said African countries should strive to make sure that mineral being discovered does not turn to be a curse.

“We must make sure that we get the value of the resources through insisting on accountability from the firms mining and that people benefit to avoid the mineral curse,” said Muwanga.


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