We know that, as in South Africa, mining is a pillar of the Botswana economy at this point. In a decade or two, of course, the situation might change; we might see Botswana exporting solar power or other forms of alternate energy. Tourism might grow apace and scientific farming techniques might assist in causing arid areas to bloom.For the present, however, Botswana is mainly dependent upon its natural mineral resources.Mining is taxed in Botswana in accordance with the 12th schedule to the Income Tax Act.Previously, any mining concern could seek a special agreement with the department of finance under the provisions of the Income Tax Act.Whether in terms of the 12th schedule, or in terms of a special agreement, mining companies are entitled to certain concessions that ordinary companies are not so entitled to.These concessions were very necessary. Why? you might ask. The answer is that mining costs money. In fact it literally costs a fortune to establish and work a mine. The mining company advances the funds which it has very little guarantee of recouping. A mining company placing its funds into a project does so at a very high risk of losing the money.Even in instances where the ore is found to be viable, occurrences such as seismic activity (earthquakes) currency volatility, lack of demand and labour unrest can cause havoc with the cash flow of a mining concern.Therefore tax concessions for mining concerns are provided for in the tax laws of most countries. These concessions allow the mining companies a little latitude and enable them to get under way.The theory of mining taxation is that the company would pump a vast sum of money into the economy of the host country. This spending, which is always substantial, brings many benefits to the economy of the host country.Mining companies spend money not only on the development of the mine and extraction of minerals, but they tend to spend heavily on infrastructure as well.In Botswana, old tax agreements that were put in place before the promulgation of the 12th schedule remain in force if the companies did not elect to adopt the provisions of the 12th Schedule by the 30th of June 1999.These existing agreements can be amended, provided that the procedures for doing so are followed correctly.Diamond mining companies are not necessarily taxed in terms of the 12th Schedule to the Income Tax Act. These companies are able to negotiate their own arrangements with the Government which would regulate their taxability.The taxation of mining activities differs from the taxation of non-mining entities in three respects, firstly, that capital expenditure is allowed as a deduction at the rate of 100 percent in the year in which it is made.Then, losses are able to be carried forward indefinitely.Thirdly the income is taxed according to a formula and this formula takes into account the profitability of the mine. Thus, marginally profitable mines are basically taxed at a lower rate and this ensures their viability for a longer time period than would have been the case should they have been taxed at a higher rate. This contributes to the job security of the workforce and allows the mine to enjoy a longer life, to the benefit of the country.Adv. Peter O’Halloran is head of tax at BDO in Gaborone. Peter can be contacted on 3902779

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