A positive and comprehensive revamp for the Kenyan mining regime – July 2013

Nigel Shaw is a partner in the Commercial department at Kaplan & Stratton and has considerable experience in advising clients on real estate (large scale developments, conveyancing, securities and leasing), private client and immigration matters.  A qualified barrister at law (Grays Inn London), and an advocate of the High Court of Kenya, Nigel’s clients consist primarily of multinational companies, local companies and private clients.

In what is seen as manifestation of the resolve by the Kenyan Government to exploit the potential of the local mining sector, the Government has created a new Ministry of Mining dedicated to the budding sector. Previously, matters related to mining were under the all encompassing Environment and Natural Resources Ministry. The Ministry is now headed by the recently appointed Cabinet Secretary, Mr. Najib Balala, who also served as a Minister (although not in the mining sector) in the previous regime.

According to the Cabinet Secretary, at the top of the agenda for the new Ministry is the overhaul of the existing legislative framework for the mining sector which is still founded on outdated pre-independence laws, conducting a geo-mapping survey to ascertain the country’s mineral content and setting up a mineral and metal exchange.

With regard to the legislative review agenda, the Cabinet Secretary has indicated that a new draft Mining Bill has been prepared by the Ministry and is at an advanced stage having been approved by Cabinet. Stakeholder consultations on the draft Bill are currently ongoing with a view to having the final draft of the Bill tabled in Parliament as soon as possible.

The Cabinet Secretary has also indicated that plans are underway to revoke the controversial Mining (Local Equity Participation) Regulations of 2012 passed late last year by the former Minister for Environment and Natural Resources which sought to introduce a mandatory requirement of 35% ownership of all mining rights by Kenyan citizens. The requirement has received criticism with investors in the mining sector stating that it is unsustainable, difficult to implement and places the country in an uncompetitive position compared to other mining destinations. It is intended that the local participation requirement will be replaced with a 10% free carry interest in mining companies to be held by the Government through a proposed state corporation to be established under the anticipated new legal framework for the sector.

New tax

The Finance Act of 2012 (Act No. 57 of 2012) amended the Kenyan Income Tax Act to the effect that withholding tax is now chargeable as a final tax on the amount or value of consideration received from the sale of property or shares in respect of mining companies or mineral prospecting companies. The applicable rates are 20% for non-residents and 10% for residents. Previously the state only levied royalty taxes of up to 3%.