Maravi

Govt has started engaging mines on taxes, says Mwansa

Govt has started engaging mines on taxes, says Mwansa
By Kabanda Chulu in Kitwe
Tuesday June 10, 2008 [04:00]

STAKEHOLDERS in the mining industry have advised the government to exercise caution on the windfall taxes because Zambia was not the only country benefiting from higher prices of copper. And mines minister Dr Kalombo Mwansa has said the government has started engaging mining companies on the newly imposed mining taxes in order to harmonise the situation.

During the just ended 51st Copperbelt Mining, Agricultural and Commercial show whose theme was: ‘mining and industry delivers while agriculture develops and environment matters’ Mopani Copper Mines chief executive officer Emmanuel Mutati said the mining sector was now playing a pivotal role in areas of foreign exchange earnings, employment creation and positive economic growth recorded in recent years.

He said that if sustained, the positive trend would guarantee the continued economical revival, not only for the Copperbelt, but also for other non mining areas.

“In order for the momentum gained in the mining sector to flourish, government should provide and guarantee a favourable playing field that is presided over by mutual trust,” Mutati said. “But regrettably, government’s recent actions (imposition of windfall taxes) are, in our view and in light of the financial results for April inconsistency with government’s desire to create an ideal investment environment.”

He said Zambia’s major competitor in the region is the DR Congo, which has managed to attract huge investments in the mining sector.

“The mining industry in the DR Congo has attracted foreign direct investment of US $ 9 billion since the end of civil war in 2003 and in comparison Zambia has attracted just over US $ 3 billion since 2000,” said Mutati. “There is need to reposition ourselves if we are to be competitive in the region and we are hopeful that a solution will be found to make Zambia the desired investment destination to keep alive the dreams of the people of Zambia.”

And Copperbelt Show Society chairman, Bill Osborne advised the government to bear in mind that Zambia was not the only country that was benefiting from the higher prices of copper, saying that the DR Congo was also benefiting and their cost of production was lower than Zambia.

Osborne said the government should have introduced mining taxes that could have mitigated costs of production because some mining companies have suspended new projects.

He said the effect of the new tax regime was already being felt in that some new projects have been put on hold in existing mines while some exploration projects have been abandoned.

“This new tax is based on turnover which in turn is based on London Metal Exchange (LME) price of copper and this means that no account is taken of costs of production and the LME price is not the price that most mines sell their copper at because the mines sell forward at a hedge (protected) price and this means that the windfall tax percentage is a lot higher when applied against net profit,” said Osborne.

“The negative effect of the new mining tax regime is being felt by existing mines and those carrying out exploration works and these will have an effect on production levels and employment and may mean that Zambia will have difficult reaching the target of one million tonnes of copper production by 2010.”

And Dr Mwansa said the government was aware that calculation of effective tax rates was still an issue on the part of some mining companies.

“The finance ministry has already started to engage the companies on the matter but the purpose of the new fiscal regime is to enable the companies continue to operate viably while contributing a little more in government revenue for the benefit of Zambians,” said Dr Mwansa.

According to an overview of Copper production during the past 50 years in line, Zambia recorded the highest peak in 1972 when the country produced over 800, 000 metric tonnes and the lowest tonnage production recorded was in the period between 1992 to 1997 when ZCCM consistently produced less than 200,000 metric tonnes.

But due to new investments in the mining sector, copper production was projected to increase to over one million metric tonnes per annum by 2010.

Currently Zambia is producing 650,000 metric tonnes and at the time of privatisation in 2000 the country was producing below 200,000 metric tonnes and during the same period employment in mining has risen from 35,355 to 58,108 in 2007.

Also, contribution of the mining sector to gross domestic product increased from 6.4 per cent in 2000 to 8.4 per cent in 2007.

The increased expenditure on capital investments has also resulted in realising the importance and potential of the Deep mining project in Chililabombwe and the technology to process the `Nkana-Wusakile black mountain' (a huge collection of copper slug that accumulated over years of mining).

Labels: KALOMBO MWANSA, WINDFALL TAX

posted by MrK @ 4:28 AM