Mining firms escape tax hike
Mining firms escape tax hikeBy Kingsley Kaswende
Tuesday February 13, 2007 [07:30]
FINANCE minister Ng’andu Magande has said the increase in the mineral royalty tax from 0.6 per cent to three per cent will not affect the existing mining companies because of the binding development agreements. The government has raised tax on mining companies to help cash in on high global copper prices. The tax increase is part of the government's austere K12 billion 2007 budget released by Magande last Friday.
During the budget presentation, Magande said the government proposed to increase the country's royalty tax on copper earnings from 0.6 percent to 3 percent, increase the company income tax from 25 to 30 per cent, and reintroduce a 15 percent withholding tax on dividends, interest, royalties and other mining sector transactions. He said the government planned to negotiate with the mining companies on tax revisions.
But at a post-budget discussion forum later, he said the new provision would not affect the current mining operation, which had binding development agreements that spell out the tax concessions. “The difficulty we have is that all mining operations have development agreements. Most of them are expanding their operations on the basis of the development agreements which contain 0.6 per cent as mineral royalties,” he said. Magande said the three per cent royalty tax and the 30 per cent company tax would only apply to those who would come after the law comes in force. “There are three waiting at the moment and it will take another three years before they finally start paying the new rates,” he said.
Magande was responding to economics consultant John Kasanga’s concerns about the disparity between the increment in mineral royalties and the expected revenue therefrom. Kasanga said last year, the projection for earnings from royalties at 0.6 per cent was K58 billion but the current increment from 0.6 per cent to three per cent, which is projected at K77 billion does not just add up. “In my view the projection would have been in the range of K400 billion. The percentage amount is significant but it is not tallying with the projected revenue gain,î Kasanga said.
Magande explained that the current projections of revenue from mineral royalties did not take into account the tax increment. “When we were projecting the revenue, we were not projecting revenue which will come out of the review that now comes to three per cent. That money is not accounted for,” he said. Magande said the government would create a dedicated account for mining revenue and would decide which particular items of the budget would receive that revenue. In Zambia, for any company involved in copper and cobalt production, the applicable rate has been 0.6 per cent.
Any holder of a gemstone license, small scale mining license or artisan's mining right would pay mineral royalty tax on the gross value of the minerals or metals produced at the rate of five per cent but the rate in force has been two per cent. The 0.6 percent royalty tax, which was particularly low compared with taxes in other copper-producing countries, was put in place during an industry downturn early in the decade, when the government was desperate to attract foreign investment.
Copper accounts for more than 60 percent of the country’s exports. Copper prices have since risen from less than US $1 per pound to more than US $3 per pound, driven in large part by growing demand from China. Zambian copper production rose by 7.9 per cent in 2006, Magande said, from 459,324 metric tons to 492,016 metric tons. The mining industry now directly employs almost 50,000 people in Zambia. "At the time when copper prices on the international market were low, mining companies were offered tax concessions in order to make their projects viable," Magande said in prepared remarks. "Now that the prices are high, there is need to review these concessions so that the nation can benefit from increased earnings from the mining companies."
Talk of revising the copper tax has raised fears, however, of a backlash among foreign mining companies many of which entered into long-term contracts with the government. Magande said the government would now seek negotiations with those companies "so that there is mutual consent by contracting parties to revise the tax regime to the new rates."
In a recent interview, mining expert Thom Kamwendo said it was good that the issue of mineral royalties had been brought back to the table. He advised that the decision should not be arbitrary but that the changes must be agreed. “If we look back, no one ever predicted that copper prices would be high. Looking at the circumstances it is worthwhile to look at the issue. It is the holistic way of how we set royalties that we must look at,” he said.
Kamwendo said the review should be robust and internationally competitive. He said the government must create a win-win situation where both the country and investors must come out with something. He said it would not be prudent to base the reviews on price alone. “What happens if the prices goes down tomorrow?” he asked. Kamwendo said Zambia was serious trouble a decade ago and that during that time, it was worthwhile to come up with concessions in the development agreements.
Labels: 2007 BUDGET, CORRUPTION, MAGANDE, MINING
posted by MrK @ 12:53 AM
1 Comments:
“The difficulty we have is that all mining operations have development agreements. Most of them are expanding their operations on the basis of the development agreements which contain 0.6 per cent as mineral royalties,” he said. "
This guy is unbelievable. How about a one-time Windfall Tax? How about increasing or introducing a new tax, like revenue tax, 'natural resource export tax', 'mine depletion tax', 'natural resource depletion tax', etc.
Magande doesn't WANT to have have the mining companies pay real taxes, because he took their money. And it is a crime against the people of Zambia.
" Kamwendo said the review should be robust and internationally competitive. He said the government must create a win-win situation where both the country and investors must come out with something. He said it would not be prudent to base the reviews on price alone. “What happens if the prices goes down tomorrow?” he asked. "
The final deal should be win-win for Zambia. Why do these guys keep caring about what the mining companies feel? Why aren't they developing Zambia's mines themselves? Also, as to prices going down (which is NOT likely to happen), any Zambian government worth it's salt would have locked in copper prices when they were still over $8000 per tonne, using futures and options.
Post a Comment
Subscribe to Post Comments [Atom]
<< Home