Tuesday, September 22, 2009

Windfall tax is easier to implement – Mukanga

Windfall tax is easier to implement – Mukanga
Written by Chiwoyu Sinyangwe and Fridah Zinyama
Tuesday, September 22, 2009 5:41:02 PM

PRESIDENT Rupiah Banda is ignoring common wisdom of tax collection by defending the windfall tax on the mining sector, United Kingdom-based Zambian economist Chola Mukanga has observed.

And Lusaka economist Professor Oliver Saasa has said the government's decision of scrapping off the 25 per cent mining windfall tax is short sighted.

Commenting on government's decision to scrap off windfall tax introduced over a year ago, Mukanga said although many agreed that theoretically, the profit variable tax could go some way in capturing the necessary revenue from higher copper prices, a windfall tax was easier to implement.

“It is also easier for the public to check how much revenue government is getting in its coffers,” said Mukanga who is also Head of Aviation Economics for the UK's Department for Transport.

“With a profit variable tax, it is an accountant's job! Multinational companies love profit variable taxes because it is easy for them to hide their profits through inflated costs and so forth. Simply put, the mining companies have smarter accountants than the government. This is why the mining companies have been pushing for removal of the windfall tax. They (mining companies) know they'll pay very little.”

Mukanga said the government's decision to succumb to the demands of foreign mining firms that strongly objected to the popular windfall tax would work against increasing revenues in the country for the much needed finance towards social services as was being advocated by the country's key donors.

“More importantly, the President is alone in thinking the current situation is ideal,” said Mukanga.

“Only yesterday, the European Union called the current situation 'depressing' and asked the government to review its position by increasing the level of tax and improving collection. Simpler taxation mechanisms are key to improving collection.”

During the address to Parliament last Friday, President Banda defended the government's decision to scrap off a 25 per cent mining windfall tax earlier this year following criticism from civic groups and opposition political parties.

Banda denied that there would be losses of revenue as a result of the lifting of the windfall tax, which had drawn complaints from foreign investors in the copper and cobalt mining industry.

And separately, Prof. Saasa said much as the people of Zambia understood government's need of creating an enabling environment for the mining sector which had been adversely affected by the credit crunch, it was important not to forget the revenue losses that the country would experience once metal prices rebounded on the international market.

“The windfall tax is not meant to punish the mining sector,” he said. “It was introduced in order to allow the mining sector to contribute positively to the country's economy in a situation where they are in a position to break even when things are more than conducive on the international market.”

Prof Saasa said the government should not forget the fact that the mining sector was a major contributor to the nation's coffers and any profits which were made above the break-even point for the mining companies should equally benefit the masses.

“Instead of scrapping [off] the windfall tax, government should have just ensured that they adjusted the windfall tax instead of totally removing it and depending on the variable tax,” he said.

“Once this decision is made, government will find it difficult to capture any revenue if the situation was to improve to allow for a windfall.”

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