ZICA takes on govt over windfall taxes

ZICA takes on govt over windfall taxes
By Florence Bupe and Chiwoyu Sinyangwe
Tue 12 Jan. 2010, 04:01 CAT

ZAMBIA Institute of Chartered Accountants (ZICA) has accused the government of continuing to ignore calls for the reintroduction of windfall tax on mining companies because it respects foreign investors more than local people.

But mines minister Maxwell Mwale could not comment on the matter by press time, only hinting that the rise in copper prices is going to bring stability to the sector after disturbances caused by the collapsed price last year.

Copper rose to the highest price since August 2008 to trade above US $7,400 per tonne on speculation that demand would increase as the global economy rallies. Copper, used mainly in construction, more than doubled last year as the worldwide recession abated.

“The copper outlook for 2010 is positive, and that demand will remain strong. Prices will rise,” said Theresa Gusman, the global head of commodities at Deutsche Bank AG’s DB Advisors unit, which oversees $215 billion.

Copper futures for March delivery advanced 8.1 cents, or 2.4 per cent, to US $3.4945 a pound on the Comex division of the New York Mercantile Exchange. Earlier, the price reached US $3.522 per pound, the highest level for a most-active contract since August 22, 2008.

There is growing pressure for the government to restore the windfall tax which was designed to trigger at prices of over US $2.5 a pound.

In an interview, ZICA chief executive Hapenga Kabeta charged that government’s continued stubborn position on the windfall tax on mining companies demonstrated its desire to please foreign investors at the expense of national development.

Kabeta observed that the country had no strategy on the mining sector.

“ZICA has been very consistent on the subject of windfall tax. Our position is that windfall tax is a tax that we need as a country,” Kabeta said.

“Unfortunately, it appears that foreign investors have more power than the aspirations of the Zambian people. This country has no strategy for the mining industry. We are greatly endowed with copper but we seem to have made a decision that we do not want to benefit as a country.”

Kabeta advised government to critically look at the issue of profit sharing and incentives granted to foreign mining industry investors.

He said mining companies were likely to procure their inputs from sister companies outside the country, thereby resulting in Zambian entrepreneurs failing to reap meaningful benefits from such investments.

“When we talk about profit sharing…who is going to determine the profits? We lack the skills of a metallurgist who is supposed to be based at ZRA (Zambia Revenue Authority) to assess the profitability of mining companies before the accountant or the taxman come in,” he said.

“I would also like to urge government to rethink its position on incentives given to foreign investors in the industry. I can give an example of Lumwana Copper Mine... the mine owners have borrowed US $1 billion for the recapitalisation of the mine, which is a very good thing, but the question is who has borrowed that money? As part of the development agreement, Lumwana will for the next seven years not pay tax, but they will be using our resources and road network, so at the end of it all, Zambians will bear the debt.”

Kabeta said Zambia should take a leaf from Chile, which he said was making a lot of money from the mining industry because the country had embarked on value addition to its copper.

He further urged the government to set lasting ground rules for foreign investors coming into the country.

“Before anybody comes into the country, there must be ground rules. Chile is making a lot of money from the mining industry because they have done something different with their industry and there’s a major trickle down to the economy from this industry,” Kabeta said.

“We also need to set rules for investors and before they come in, we should know whether they fit in or they don’t, based on the rules.”

Kabeta also cited diversification within the mining industry as one way to enhance benefits to the economy.

He also complained that the government had continued to treat the subject of economic diversification with lack of seriousness.

“Unfortunately, diversification is something we have tended to treat as lip service. In the mining industry, government must consider giving incentives to investors that are committed to adding value to copper,” Kabeta said.

“In the agriculture sector, we have a lot of people who have skills to produce maize and products thereof, but we are still talking of exporting only 100,000 metric tonnes of maize. With our endowment, we should be talking about exporting millions of tonnes to neighbouring countries, we should move away from insisting that we are landlocked, and start seeing ourselves as being land linked.”

And when asked on the growing pressure for the government to restore the windfall tax scrapped off last year, Mwale asked for a press query, which, by press time, had not been responded to.

He, however, said the rise in copper prices was expected to bring stability in the mining sector after the industry suffered extreme turbulence in the wake of collapsed copper prices over a year ago.

Mwale said the current favourable copper prices were also expected to spur investments into mineral exploration which was key to the future development of the local mining sector.

“What this will mean is that we are going to have increased explorations activities and really, this is essential to the future of our mining sector,” said Mwale. “The increase in price is also going to bring about stability in the sector.”