Govt backs plans to introduce windfall tax
Govt backs plans to introduce windfall taxBy Joan Chirwa
Tuesday May 08, 2007 [13:15]
FINANCE and national planning deputy minister Jonas Shakafuswa has said proposals for the introduction of windfall tax on mining companies were a good idea which the government could later embrace. Shakafuswa however said implementation of windfall taxes would not be done in the short term since the government had already started re-negotiating new taxes proposed in this year’s budget under the current development agreements for mining companies.
A windfall tax can be simply defined as a one-off tax levied where some unexpected increase in profits or value is made which the government or the public think is an unreasonable advantage taken at the public’s expense.
In South Africa, the minister of finance Trevor Manuel presented the 2007 budget with explicit mention of pending windfall taxes on SASOL, the petrochemical industry.
Tanzania had in the 1990s also put windfall taxes on petrol companies while the Dominican Republic did the same on tourism companies and exports.
In 1997, a windfall tax was levied in England on unexpectedly high profits made by some recently privatized utility companies such as British Gas and British Telecom.
About five billion pounds were collected and mainly designated to finance job creation schemes. Gains from these taxes could go for social benefits.
Shakafuswa invited stakeholders, especially those from the private sector to engage in discussions with officials from the Ministry of Finance regarding proposals for the introduction of windfall tax on mining companies.
“People have got good ideas. This country really needs money for its people. We need to reduce taxes for a common person and we need to improve infrastructure such as schools and hospitals through collection of revenue from our natural resources,” Shakafuswa said. “Instead of fighting over this issue, it is important for all stakeholders to come forward so that we can sit down and discuss. Our offices at the Ministry of Finance are very open for any person with brilliant ideas on how Zambia can maximise benefits from its mineral resources.”
But Shakafuswa indicated that the government had already begun negotiations on the proposed taxes on mining companies under the current development agreements, and that no fiscal alteration was feasible.
“Under the current development agreements, any fiscal alteration can not work. Any change to legislation needs to be negotiated,” Shakafuswa said. “We have started negotiating the proposed changes in taxes for mining companies and this is what we will go with for now. The issue of windfall taxes can be considered at a later stage.”
Shakafuswa said the government would want to engage in fruitful negotiations for increased mineral royalties from 0.6 per cent to three per cent.
“I wish people could look at the current development agreements,” Shakafuswa said. “The current situation is that any fiscal regime which will affect the stability of these development agreements will be null and void. We have to find better ways of collecting money for the Zambian people and not to fight with investors.”
Discussions on windfall taxes have been sparked by a proposal made by Lusaka businessman and former chief executive of the defunct Meridian Biao Bank Andrew Sardanis. Sardanis proposed that the government puts windfall taxes on mining companies in order to maximise benefits from high prices of copper on the international market.
And Trevor Simumba, an international trade expert, suggested that the government comes up with a task force to renegotiate taxes on mining companies. “The renegotiations of development agreements needs to be done in a structured way,” Simumba said. “We already have a task force on corruption in this country and I know it is possible for Zambia to establish a taskforce that can specifically be charged with a responsibility to renegotiate agreements with mining companies and find a way of getting real benefits from our resources.”
Simumba said Zambia could utilise other countries, such as Britain, that have successfully implemented windfall taxes. “We have technical people from the Ministry of Finance who can coordinate the whole issue by inviting people like Sardanis to participate in the discussions. Government can do research from private companies and it can also consult the British government since it imposed windfall taxes a few years ago on some privatized companies.
“We don’t want a situation where money just disappears and people don’t even see the benefits of having huge companies in the country.
“If countries like Algeria managed to impose windfall taxes on oil exporting companies, why can’t Zambia do the same for the mining companies?
“We need to seriously consider this issue. Very soon, Zambia will be mining uranium and we don’t want to see the situation with copper happening with uranium.
“We need to look at this issue in an objective manner. We have enough brains in Zambia that can manage to come up with a structure on windfall taxes.”
Labels: ANDREW SARDANIS, JONAS SHAKAFUSWA, MINING CONTRACTS, TAXATION, TREVOR SIMUMBA, WINDFALL TAX
posted by MrK @ 6:49 PM
4 Comments:
This is potentially fantastic news.
Let us remember that when these agereements were signed, the price of copper was $1000 per tonne. Recently, the price peaked at over $8600 per tonne.
Surely, the Zambian state should tax benefit from anything over $2000 per tonne? They thought the mines were profitable then, they have made their unrestricted profits in recent years, now it is time for Zambia to benefit from it's own mines.
Also, these development agreements are just contracts. Contracts may be in compliance with or in violation of the law, but they can surely never be above the law? Or the constitution?
It is time for this MMD government to show everyone what they are made of, and finally get a good deal for Zambia.
And another thing...
For the MMD, success in this area will go a long way in mitigating accusations of corruption and bribery.
So let's see what kind of new deal they can make.
This cautious approach to this issue will not yield results. It will only take the price to drop to $7000 and these guys will claim that they are not making any money yet as Mr.K has rightly pointed out the price has moved from $1000 to $8000.
Obviously we need people in government who can multi task and not move one step at a time.
How long has the government been dragging t's feet on this issue. People started talking about this last year and we still haven't started re-negotiating. Perhaps it's a lack of confidence and the Minister doesn't know how or where to start the talks.
I for one don't see much being achieved before year end.
" Perhaps it's a lack of confidence and the Minister doesn't know how or where to start the talks. "
I think it is also the fact that politics is moving along at it's own pace.
Mwanawasa has been re-elected now, but at the same time, this is also his last term in office. He doesn't have much to lose in terms of being re-elected.
He does however have a lot to lose in being prosecuted for corruption once he leaves office (the drawback of political corruption).
What I don't understand is how they are bound by these development agreements at all. Especially if those are illegal or unconstitutional. The President may be above parliament in many ways, but he is not above the constition.
I wish a lot more information was brought out about these agreements, their standing in the law, and the potential remedies against this intolerable situation.
The country is missing out on billions of dollars of profit from the mines. Politically, that is not defensible to the people who are paying an immense amount of money in PAYE income tax.
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