Maravi

Seshamani urges govt to reconsider windfall taxes

Seshamani urges govt to reconsider windfall taxes
By Fridah Zinyama
Tue 15 Dec. 2009, 04:00 CAT

AN Investment analyst has suggested that the government should start taxing copper on the basis of prices per metric tonne for Zambia to accrue meaningful benefits from its natural resources.

And University of Zambia (UNZA) Economics lecturer Professor Venkatesh Seshamani has urged the government to reconsider its position on the recently scrapped 25 per cent windfall tax next year, considering that copper prices are likely to continue peaking on the international market.

Meanwhile, Civil Society Organisations (CSOs) have noted that the government needs to involve members of parliament when negotiating mining contracts with investors in order to encourage transparency and accountability in the whole process.

The government has in next year’s budget not included any projected revenue from the mining sector. And commerce minister Felix Mutati recently indicated that the government will not introduce any new taxes for the mines next year.

Copper prices have hit the US $7,000 per metric tonne level on the international market, and many stakeholders feel the government made a wrong move to scrap off windfall tax when prices bottomed at the peak of the global economic crisis.

In an interview, investment analyst Roman Kambone said the government should totally scrap off the corporate tax and implement the price per tonne taxation method, a system that he said could work.

“The people of Zambia need to benefit from their resources, and the best way this can be done is to find a taxation system that is going to work,” he said. “Let’s assume that government collects about 15 per cent of all sales per metric tonne that mining companies are making through out the year, the mining companies would remain with 85 per cent of their cash to meet their daily expenses.

And government would have more cash than they would have collected if they had implemented the corporate tax system. Moreover, it is difficult to say that government will tax profits from mining companies...profit is not always in cash.”

Kambone explained that this was the reason why most mining companies said that they had not yet started making profits which government could tax.
“Profits are not real, even when a company has profits, they may not have cash,” he urged.
Kambone further said the explanations given by the Chamber of Mines that some mining companies would need 15 years before being adequately taxed were incorrect.

“The reasons which the Chamber of Mines is putting forward on why some mining companies should not be taxed are not justifiable,” he said. “Different companies have different life spans and different mineral deposits. How much financial capital a company invests and how much cash flow a company generates to sustain the operations of a company all make a difference to whether a company can pay tax or not and not the years it has been operating.”

Kambone said copper prices on the international market were likely to remain high for the next few years, saying there was therefore no justification for the mining companies not to be taxed.

And Prof Seshamani said copper prices were likely to continue going up for the foreseeable future since economies of China and India were growing, stimulating demand for the red metal.

“Government should reconsider the decision they made on windfall tax, the same way they changed their minds concerning the mineral royalty,” said Prof Seshamani.

And the CSOs observed that there was a lot of secrecy surrounding development agreements and mining contracts signed by the Zambian government and the mines, hence the need for the involvement of members of parliament in the whole process.

“In the spirit of transparency and accountability, parliament through MPs should verify, rectify and ratify the agreements,” the CSOs recommended in a thematic position paper on the mining sector. “This will ensure that the process and outcomes of all negotiations pertaining to the developments agreements and mining licences are transparent and benefit the Zambians.”

And the CSOs further noted that a policy to guide the mining sector was needed so that it could contribute towards poverty reduction and benefit the poor.

“The basic objectives of mining in Zambia 2011-2015 should be to diversify mineral exploration from copper dependence, to develop mineral resources taking into account the national and strategic considerations and to ensure their adequate supply and best use keeping in view the present needs and future requirements,” they stated.

“To ensure that the conduct of mining operations has regard for safety and health concerns, to promote research and development in minerals and to ensure the establishment of appropriate educational and training facilities for human resources development to meet the manpower requirements of the mineral industry within the country.”

The CSOs further stated that government needed to come up with deliberate efforts to strengthen the Zambia Revenue Authority (ZRA) to scale up the monitoring and tax collection systems.

“This can be done through the establishment of a Mine Tax department under ZRA,” stated the CSOs.

Labels: MINING, TAXATION, VENKATESH SESHAMANI, WINDFALL TAX

posted by MrK @ 6:48 AM