Good on mining taxation, but the rest is rhetoric
Good on mining taxation, but the rest is rhetoricBy Editor
Monday January 28, 2008 [03:00]
Ng’andu Peter Magande, last Friday presented his 2008 budget speech amid the usual pomp and ceremony. To start with, let us look back to last year. The 2007 budget theme was “From Stability to Improved Service Delivery”. To be candid, we are not at all sure if there was any significant improvement in any service delivery for the common man.
The annual budget themes, as sad as it may be, have become mere titles with little significance on either intent or delivery. Every document needs a title, so this year’s budget is titled: “Unlocking Resources for Economic Empowerment and Wealth Creation”.
As we go into the analysis of the 2008 budget, it is important to bear in mind that the legal framework for the fiscal or budget management is derived from the 1996 Republican Constitution. Civil society knows, but the government it seems does not, that there is an urgent need for constitutional reform on budget and fiscal matters.
In the year 2000, the Parliamentary Committee on Estimates tabled a constructive report on the required budget reform in Zambia. This report, like many others unanimously adopted by Parliament, still sits on the shelf without any intention to implement.
Why then, does Parliament every year go through the process of discussing and adopting Parliamentary Committee reports? Parliament alone has the constitutional authority to impose or alter taxation (Article 114(1), and to appropriate money (Article 117).
Although the Constitution does not limit the power of Parliament to amend the budget, the legislature adheres to precedence “reductions only” rule. Parliament has effectively functioned as a “rubberstamp” in budgetary matters, and currently, there is no value added, while the Public Accounts Committee is toothless.
Other than the budget speech and the economic report, there is no supplementary analysis provided with the budget. We hope that the members of the National Constitutional Conference will examine all the Parliamentary Reports on budget reform, among many other issues and seriously look into these issues when they recommend the draft constitution.
Legal and constitutional provisions should be made for the formal engagement of Parliament with policy framework that underlines budget planning well in advance of budget presentation.
This could take the form of budget policy statements presented to Parliament prior to the tabling of the budget. Only if members of Parliament are informed about ministry, departments and other policies, and how they are reflected in the budget, will they be able to assess independently whether the budget is indeed congruent with government’s stated policies. If Parliament were able to undertake shifts between votes through the amendment process, ministries and departments would be forced to justify their spending plans publicly and transparently.
The Ministry of Finance should also table cash releases figures for each subhead on a monthly basis, based on projections of actual disbursements against the approved estimates.
The new constitution is not only about presidential powers, Bill of Rights, but equally about all facets that govern the daily lives of our people, which importantly includes the way government is tasked to manage fiscal affairs through the budget process.
In analysing the 1,558 pages of the budget “Yellow Book” which carries the scanty details of the budget, what strikes us as most obvious is that it is more of the same - full consumption of our own money and mostly development with donors and loan money. Most of the social and capital projects are funded by donors and most of our own resources are spent on consumption.
Had it not been for donors and others, most of the major development and infrastructure projects and programmes of the ministries of health, education, works and supply (roads, bridges), local government, public sector reform, private sector development, agriculture, the new stadium, among other projects and programmes would not have been funded from our resources. So, where does the money go?
The total budget in 2008, including donor support, amounts to K13.761 trillion, of which K12, 525,329,778,454 is for personal and non-personal emolument programmes and K1,236,071,115, 984 for constitutional and statutory expenditures (such as paying foreign and local debts).
During 2007, both the Minister of Finance and the Secretary to the Treasury showed serious concern about budget implementation, in particular unspent balances on capital projects. Yet, the budget speech or the budget “Yellow Book” makes no mention as to what is being done or will be done to improve budget implementation.
We begin our analysis with the revenue side. Income tax, excluding mineral royalty tax is projected from K3,764,732,290,339 in 2007 to K4,081,380,000,000 in 2008. Mineral royalty tax is projected from K67,503,453,250 in 2007 to K72, 000,000,000.
The good news is that the mines are now going to be taxed in a variety of areas and in a manner that brings substantial revenue.
However, in public interest it would be good if the Minister of Finance could also give us the downside - what if the price of copper is below $2.50/lb? What would be the projected revenue for the government?
The allocation of K50 billion for financing the Citizens Economic Empowerment programme is also a good beginning. However, no one knows how this will work. And whether this will help create equity in companies for a large number of workers or a few select citizens is yet to be seen.
We do not want to see empowerment for the elite few. The devil is always in the detail, which details unfortunately are not spelt out in any budget document.
On expenditure, it all begins with the official opening of Parliament which costs the taxpayers K352 million in 2008. In addition, the budget sittings (from January to March) alone will cost the taxpayer K7,835,630,600 and K8,367,917,099 for sittings during the rest of 2008.
Most of the expenses for sittings are allowances for members of parliament. The 20 oversight parliamentary committees have been allocated K7,452,802,000 and another K8,309,247,750 for running of the Parliamentary Constituency offices.
This is now all possible, because the taxpayers in 2007 financed K19,488,047,502 to purchase motor vehicles for all members of parliament.
State House spent just over K5 billion in 2007 for transport management and have again been allocated K6 billion in 2008. This certainly is not justifiable.
What does State House, and the rest of government, do with all these motor vehicles they purchase every year? An average citizen who buys a vehicle keeps it for at least a few years, but in government there is no end to buying vehicles.
Is that development? In 2007 the Ministry of Works and Supply spent over K18 billion on buying VIP vehicles and this year another K2 billion has been allocated. Obviously the priorities are with VIP vehicles!
What is government up to? Rehabilitation of the Lusaka Independence Stadium has been allocated K28 billion. Under Cabinet Office, public affairs and summit meetings gobbled up K65 billion in 2007, and in 2008 K42 billion is allocated
A total of about K6 billion was sent for the Salaries Commission of Inquiry, whose findings are unknown as of now. Perhaps the Civil Servants and Allied Workers Union need to have a look at this before they conclude any negotiations.
In 2007 the Ministry of Home Affairs spent K21 billion to purchase motor vehicles for Zambia Police and in 2008 have been allocated another K17 billion for more motor vehicles.
The Ministry of Foreign Affairs is opening up a new embassy in Kuala Lumpur, Malaysia when all our existing missions are already badly funded and most of the buildings are an eyesore and embarrassment to Zambia. Instead of maintaining our missions, the Ministry of Foreign Affairs thought it prudent to spend K2.1 billion in 2007 for lobbying, we assume for our candidate Inonge Lewanika at the African Union. This is a very weird choice of priorities. The Ministry of Finance has allocated K5 billion for the Financial Sector Development Plan (presumably for meetings and sitting allowances) and K58 billion for “other financial restructuring” - whatever that means.
After being allocated K15 billion in 2007, the Zambia National Building Society get a further K9 billion in 2008. There is a need for a full explanation as to why the government is pouring billions into the building society? Is it technically bankrupt?
Why is the regulator of banks, the Bank of Zambia quiet on the issue of the Zambia National Building Society? Zambia Wildlife Authority (ZAWA) is also allocated K23 billion for re-capitalisation, and donors are giving an additional K13 billion funding.
So what has ZAWA been doing with the money it makes from fees and other charges? Under the Ministry of Finance, the Finance and Management Accounting department were allocated just over K1 billion for office administration in 2007 but instead spent over K7 billion and this year have allocated themselves K748 million.
Why such disparities? Under the Human Resources department of the Ministry of Finance, K12.8 billion was spent for inducement allowances and this year have allocated K14.5 billion.
Why are some selected few at the Ministry of Finance better paid than the rest? The Ministry of Justice spent over K5 billion on office administration in 2007 and in 2008 has allocated itself K1.7 billion.
The National Constitutional reforms and NCC spent K165 billion in 2007 and another K288 billion has been allocated for use in 2008. By the time this exercise is completed, Zambia is going to have one of the most expensive constitutions!
In 2007, K30 billion was allocated for the Youth Empowerment Fund. This year there is nothing. This tells us that either the money was not released on time, or the money has not been allocated for such projects. Why? We need an answer.
The Ministry of Defence headquarters in 2007 was allocated K2.67 billion for office administration, but instead spent K16.66 billion and this year have been allocated K2.7 billion. If it was for the Joint Permanent Operations, then in 2007 they had spent K12.6 billion on that, instead of the budgeted K100 million.
At Zambia Airforce, K1.7 billion was budgeted for office administration in 2007, but instead they spent K11.7 billion and this year they have been allocated K2.55 billion. Zambia Army, in 2007 was allocated K90 million for office administration but instead spent K10 billion, and this year it has been allocated K176 million. The Zambia National Service in 2007 was allocated K309 million for office administration, but instead they used K6.3 billion and this year they are allocated K498 million. There is something really fishy about all these “office administration” expenditures.
The Zambia Intelligence Service was allocated K186 billion in 2007 and this year they get K209 billion. Why on earth do they get so much money? Compare that to students’ loans awards at UNZA of K28 billion and K11.5 billion for CBU in 2008.
Clearly, there are so many such instances in the Yellow Book that require full explanation, and it is obvious to us that this is not how one unlocks resources for economic empowerment and wealth creation.
And what would be the explanation here? The answer is simple. The budget has done nothing to look at industrial input tariffs for our industry; instead government tinkered around with dyestuff and musical instruments. One cannot develop a textile industry by tweaking dyestuff tariffs!
All that sweet talk from the Minister of Commerce, Trade and Industry on industrialisation and private sector development has been simply sweet talk. One cannot charm and sweet talk, without delivering on something tangible. This is not how we are going to industrialise and maintain export competitiveness of our local industry.
Poverty reduction programmes (PRPs), as in the past, feature prominently across all ministries. However, it is highly questionable if programmes such as field trips, purchase of vehicles, personal emoluments, monitoring and evaluation, office administration, drawing up policy documents among other absurdly defined programmes can under any stretch of imagination be regarded as poverty reduction programmes.
And this is where the budget falls apart. PRP programmes should be such that they assist the poor to improve their lives and help create sustainable wealth and provide the much-needed social services. Looking at all this consumption, office administration expenditure, among others, it is no wonder that over 70 per cent of the people of Zambia still live on less than a dollar a day.
We hope that all members of parliament and civil society organisations will take time to scrutinise the Yellow Book so that they can help influence the much-needed amendments to the 2008 lopsided budget allocations.
Labels: 2008 BUDGET, DEVELOPMENT AGREEMENTS, MINING CONTRACTS, TAXATION
posted by MrK @ 5:16 AM
9 Comments:
If news taxes is 75% for copper under 3,5$, when investors will go out from zambia
With this law the investor earns more if the copper is low and wages are low...!!
Zambia needs taxes but needs investors too !!
is a very bad law for the contry, very bad !
i can't understand !
If news taxes is 75% for copper under 3,5$, when investors will go out from zambia
Proof?
Anyway, taxes are 75% when copper goes OVER $3,50 per pound. Considering it only briefly touched $4,00, that is not bad at all.
And where would they go to? Leaving Zambia is practically the same thing as leaving copper industry itself.
the GRZ's proposition is a loose/win proposition not a win/win proposition, and you'll see that the mining will reduce the production next days...
This proposition is a dramatic political mistake for the country and investors
Even if this is not a vote by the parliament, investors are now afraid to come in the country.
albidon, alberg mining could go out.. and development of kdeep could be stop
"ALBIDON Zambia has called on Government to respect the mining development
agreements signed with the mine. Albidon Zambia, general manager-corporate,
Sixtus Mulenga, says fiscal and regulatory measures introduced in the mining " daily mail
" LUMWANA Mining Company (LMC) is seeking clarification from the Government on
whether changes to the mining fiscal and regulatory regime in the 2008
Budget will affect the development agreement signed two years ago."
Ok, so they don't like paying taxes. But where on planet earth are they going to go where they don't have to pay taxes?
They could go out. Where would they go?
And is there any evidence at all that they are going to 'pull out'?
And I hate to say this, because I don't like to make an ad hominem attack, but how do I know you're not just shilling for the mining companies?
when you invest in mining industries you can't accept pay 75 % taxes !, lol
you go in a other contry...
no more investisor will come in zambia, even if this law is not a vote by the parliament
it's a pity
There are industries that are taxed at 90%.
As long as they are making money.
I estimate that profits in the mining industry are 2.4 billion. Even if that was taxed at 75%, the mining companies would still keep $600 million in profits.
And that is after they are allowed to keep 25% to recapitalize and replace their machinery.
So no, you can tax them at 75%, and be very competitive.
Your side of the argument keeps forgetting that there is nowhere in the world these mining companies can go, and participate in the opportunities they can in Zambia's Copper Belt.
They could try the DRC, but they would have different costs. :)
i can't imagine parliament vote this law like this !
perhaps magande try to be in good position for president's election in 2011 ? ...
president is a good job :-)
tks for this blog mrk
Anonymous,
No problem.
I'm just looking forward to the day that the mining companies pay hundreds of millions (at least) in taxes, so the money can finally be invested in infrastructure and agriculture.
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