“At every step, from mine to ring finger, South Africa’s diamond industry is benefitting from royalty and export tax structures riddled with loopholes, shortchanging citizens of one of the world’s premier sources of diamonds of tens of millions of dollars a year in revenue.
In 2011, South Africa produced diamonds whose uncut, or rough, value was $1.73 billion, or 12 percent of global production, according to the most recent government data available. Yet from 2010 to 2011, diamond-producing companies paid South Africa’s government just $11 million in mining royalties, according to the latest Tax Statistics report, produced by the South African Treasury and the South African Revenue Service.”
That is quite remarkable. And the report itself has a particular focus, which is interesting:
“The issue is not just one of whether the rate is too high or too low, or of whether the company has paid, avoided or evaded that rate, but that the amount of tax paid is a consequence of a valuation system. This paper explores how this valuation system works.”
And it makes an observation:
“There exists significant discrepancies indicative of possible transfer pricing manipulation of rough diamond values. This is due to the monopoly position of the De Beers Company and their consequent ability to designate price in various locations in the value chain and when moving diamonds across borders. Because of these discrepancies it can be plausibly suggested that the industry is not contributing the level of tax that could be reasonable expected by the citizens of South Africa.
The full report, as we’ve noted, is here.