Sickening irresponsibility on mineral royalty tax

Sickening irresponsibility on mineral royalty tax
By Editor
Friday March 30, 2007 [02:00]

Who benefits from mining? What is the myth and what is the reality?

These questions have been up in the air for a long time now. Exploitation of mineral resources constitutes a very significant element of our national wealth. Mining uses a non-renewable resource which means that there is an “economic rent” that belongs to all Zambians which at present is appropriated by the mining industry.

It is this fact that justifies an adequate mineral royalty tax. There is a growing worldwide consensus which is to charge the “economic rent” corresponding to resources. During 2006, preceding the general elections finance minister Ng’andu Magande made several loud, but now worthless public announcements that government was going to revise the mineral royalty tax. However, as we have seen from the 2007 budget proposals, there is little to show for it. Magande must learn to walk the talk and not just talk the talk. In America they have a saying; talk is cheap.

We know that the 2006 IMF mission at the invitation of government held meetings with Evans Chibiliti, the Secretary to the Treasury and chair of the technical committee examining development agreements and the fiscal regime for the mining sector. What did Chibiliti do?

Did he invite all the stakeholders and existing mining houses with development agreements for a discussion? From what we have gathered, no meaningful discussions have taken place to-date either with the mining houses or stakeholders. Yet we know from reading the IMF recommendations on mineral royalty taxes, which report neither the Ministry of Mines nor Cabinet has seen or discussed, that Magande carelessly accepted the IMF recommendations and proposed those he could get away with under the 2007 budget.

Why did Magande and Chibiliti ask for advice from the IMF, whose sole purpose for its survival is to articulate the “Washington Consensus” imperialist policies that have failed for decades in all developing countries? Why did Magande and Chibiliti not seek advice from South Africa, Chile, UK, India, Bolivia, and Venezuela, among others?

Eva Jolly, the senior advisor to the World Bank on corruption is right when she said she was shocked to see Zambia being deprived of rent for its land through the mining contracts. And we also agree with her that it is time Zambia renegotiated the mining contracts.

We have carefully looked at the development agreements and in most cases under the current development agreements fiscal stability provisions that guarantee that the fiscal regime will not be made more onerous during the stability period of 15 or 20 years. Stability provisions provide that the corporate tax rate will not be increased and the allowable deductions and allowances will not be reduced.

New taxes or new fiscal measures will not be imposed.
If the stability provision is dishonoured, for example, the government has committed to make up for changes to ensure the mining company is fully compensated.

However, if the current legislated fiscal administration were made more generous, the mining company would gain from this change. So it is a win-win situation for all development agreement holders and a lose-lose situation for government. The stability provisions benefit the mining company, protecting the company from tax and royalty increases, while permitting the company to benefit from any tax or royalty decreases.

And we have to ask; why have parliamentarians not seen the development agreements? Why is government hiding these agreements from Parliament and therefore the public? In Chile, the world’s principal copper producer whose exports constitute 40 per cent of global copper supply, a pivotal public debate has developed over the past few years concerning the mining sectors’ tax contribution.

During the period 1990 to 2001, the government-owned copper mining conglomerate Codelco paid around US $10.659 billion to their treasury, while the private mining companies only contributed US $1.638 billion in spite of their production being 25 per cent greater than Codelco.

In addition, taxes paid by Codelco per metric tonne of copper produced represented 28.7 per cent of the final price, while taxes paid by private mining companies amounted to only 5.3 per cent.

It is therefore estimated that the total of lost tax revenue during that period amounts to US $10 billion. In the face of public and parliamentary opinion, the Chilean government decided to put forward appropriate mineral royalty tax legislation.

In Colombia the history of royalties starts with the Constitution of 1991, in which it provides for an “economic compensation by way of royalty” for the exploitation of non-renewable resources. The royalty rates range from three per cent to 12 per cent for different minerals.

It also establishes the right to a share in these royalties for local communities and municipalities where exploitation takes place. It is obviously clear that neither Magande nor Chibiliti can make bold decisions on behalf of our country, as they appear to exclusively rely on IMF for all and any advice on budget issues.

We are aware that neither the Ministry of Mines nor Cabinet were availed the so-called IMF recommendations on mineral royalty tax. We must ask, what does the IMF know about mining?

Zambia’s development has been intrinsically linked with mining. The nature of the challenge is clear. It is to create a situation in which Zambia and its people can benefit and have a direct share in the wealth created by exploitation of our mineral resources in a way that it helps the quality of life of all Zambians.

As it is now in Zambia, no mining exploration or mining concessions are available for Zambians to invest, since almost the whole country has been given to foreign investors, with an exception of very few Zambians where foreign investors have appointed Zambians in superficial roles as “nickel and copper plated” directors and legal advisors in the role as Mr Fix-It. Surely this madness cannot go on.

We therefore insist that President Levy Mwanawasa appoints a committee of eminent citizens to inquire and recommend as to how best Zambia can move forward in attaining financial and development benefits from its natural resources for the greater good of Zambia. This is the way forward.