‘Copper Tax accounts for only 2% of govt revenue’

‘Copper Tax accounts for only 2% of govt revenue’
Written by Mutuna Chanda in Kitwe and Chiwoyu Sinyangwe in Lusaka
Tuesday, August 25, 2009 3:59:53 PM

TAX earnings from copper mining only account for two per cent of government treasury's total annual revenue despite it being Zambia’s lifeblood owing to low taxation levels, mineral economics expert Dr Mathias Mpande said last week.
And former Kitwe Chamber of Commerce and Industry chairman Eddie Kapungulya has challenged the government to stop ‘insider trading’ in the mining industry and ensure it collects tax revenues at the correct value of minerals such as copper.

Commenting on the resurgence in international copper prices, Dr Mpande who is also a lecturer in the School of Mines at the University of Zambia (UNZA), said there was need for the immediate restoration of the 2008 mining fiscal regime abandoned this year following pressure from the mining companies, saying it was well researched and easier to administer than the current one.

The red metal widely used in power and construction has in the last eight months risen from low levels of US$2, 900 per tonne, a level seen last December to the current trading levels of about US $6,146 per tonne on the London Metal Exchange.

In an interview, Dr Mpande said there was need for the government to reinstate the 2008 mining fiscal regime which had the windfall tax component in it, ensuring the capture of super profits being made by mining companies.

Dr Mpande said the abolished 2008 mining fiscal regime was well researched and calculated to ensure the country captured benefits from the biggest industry unlike the tax system introduced in this yearís budget.

“We just need to reinstate the windfall tax and keep it permanently so that there is stability of policies which the mining companies are talking about and also to ensure the money is put in the stability account,” Dr Mpande asid.

“We need to put in taxes that ensure that we have some sort of a win-win situation; it has to be good for Zambians as much as it has to be good for long-term investors not those who base their investments on political patronage or relationship with existing political leadership. Stability of mining policies does not imply no tax or tax exemptions.”

Dr Mpande said the country could not diversify from mono-dependence on copper because the country’s lifeblood which was supposed to spearhead this shift was contributing very little to the revenue basket.

He said following the abolishment of the 2008 mining fiscal regime, Zambia had one of the lowest earnings from the mining sector, with developed countries like United States earning as high as 17 per cent of the country’s total revenue earnings.

“The mining sector is consuming the bulk of electricity, the bulk of all transport infrastructures and also paying the lowest cost for everything and yet it is only contributing to two per cent to [the] treasury. So who is subsidizing the operations of the biggest industry, it is the Zambian people,î said Dr Mpande.

“Even countries like Chile, Australia, Sweden and South Africa have been able to build strong industrial base and diversify from heavy dependence on copper, but I don’t see that happening because the main industry which is supposed to drive that is parasitical on the country. Foreign Direct Investments cannot help the country to develop unless it is well managed to the benefit of the country.”

And Kapungulya, who is also Zambia Association of Chambers of Commerce and Industry (ZACCI) Northern Region vice-chairman, said Multi National Companies (MNCs) which had subsidiaries in the country’s mining industry were buying minerals such as copper at the gate price which was lower than that of the London Metal Exchange (LME).

He said this meant that Zambia was taxing the minerals based on the invoices generated at the gate price that the companies were selling to their parent companies abroad at a lower cost than the world market value of copper as set on the LME.

“Government should also put in place a policy where companies which are subsidiaries of multinational companies should be discouraged from doing “insider trading” where they sell to the parent company at a gate price which is lower than the London Metal Exchange price,” Kapungulya said.

“Invoicing should be done at the London Metal Exchange price and taxation should be at the actual LME price and not at the gate price.”

He also said the government should not change policies at the behest of foreign investors.

Kapungulya said Zambia was regretting its decision to withdraw the tax regime that would have made it benefit more from minerals such as copper during periods of high prices on the world market.

“Government should not change policies at the whims of foreign investors because now with the rise in copper prices we are regretting,î he said.

He further urged the government to push for a policy that would ensure that exporters kept their revenues in Zambian financial institutions as opposed to the present case where investors only returned funds to meet the cost of their operations and tax obligations.

And Kapungulya said the spillover effects in the rise in copper prices may not be felt in the near future as mining companies were still cautious over their spending habits.

Kapungulya said the mining companies were analysing the factors driving the recent surge in copper prices.