By Chiwoyu Sinyangwe
Tue 16 Feb. 2010, 04:00 CAT
THE mining sector can and should be contributing more towards government revenues, World Bank country manager Dr Kapil Kapoor (right) has said.
However, Dr Kapoor said there is need to distinguish between the contribution of the mining sector to the local economy more broadly and to the Treasury more narrowly despite the two being related.
Dr Kapoor was commenting on calls by some key stakeholders for the government to reinstate the windfall tax on copper and cobalt prices abolished last year to help the mining companies deal with collapsed metal prices at the height of the global financial crisis.
In the aftermath of the global economic crisis, copper prices have rebounded from slightly below US $3,000 a tonne in the third quarter of 2008 to over US $7,500 a tonne last month.
Although copper prices have come down to around US $6,500, the lowest levels in more than three months, as growing concerns over the euro zone's fiscal health and tighter monetary policy increased, long-term projections point to a strong red metal prices.
Dr Kapoor said the mining sector is also an important engine of growth for the Zambian economy and a provider of much needed employment.
“In deciding the contribution of mining, it is necessary, I believe, to make a distinction between the contribution of the mining sector to the Zambian economy more broadly and to the Zambian treasury more narrowly, although the two are no doubt related,” Dr Kapoor said in response to a press query.
“Too often in public discourse, the contribution of the mining sector in Zambia is measured only in terms of the contribution to government revenues. It is important to keep in mind that mining accounts for 70 per cent of Zambia's annual foreign exchange earnings without which it would be difficult for Zambia to finance much of its annual import requirements and the kwacha would be much weaker. The mining sector is also an important engine of growth for the Zambian economy and a provider of much needed employment.”
Dr Kapoor said the mining sector’s contribution to the government revenues was very important because mining is a wasting asset and revenues from the sector were needed to form the foundation for the diversification of the local economy from mono dependence on the mining sector.
“The key challenge that has confronted Zambia for generations is that copper is an exhaustible resource and therefore how can its proceeds be used to diversify the economy and lay the foundations for long-term sustainable growth,” he said.
“This is where the sector's contribution to the government revenues becomes very important. I believe that the mining sector can and should be contributing more towards the government revenues.”
And Dr Kapoor said although the local mining tax rate of over 40 per cent was competitive relative to other mining countries, Zambia was not getting corresponding revenues because of the incentives given to the local mining companies.
Among the incentives given to the local mining companies by the government include allowing 100 per cent deduction on capital expenditures and the provision to allow losses to be carried forward.
“However, here the issue is whether the low tax collections are due to the prevailing tax rates or are they a result of the investment incentives provided in the past, when the industry was loosing up to US $1 million per day,” Dr Kapoor said.
“Mining companies are presently required to pay a royalty of three per cent, a corporate tax of 30 per cent and a variable profits tax of 15 per cent. This implies a tax rate of over 40 per cent and makes the Zambian mining tax regime comparable with other mineral exporting countries. However, these rates do not result in commensurate revenues on account of the incentives that have been granted by government, such as the 100 per cent deduction on capital expenditures and the provision to allow losses to be carried forward, thus constraining government tax collection from the sector. Once these provisions come to an end, the tax take should increase significantly, even with the existing tax regime.”
Dr Kapoor said any changes to the tax regime in the mining sector needed to be done within the framework of renegotiations between the government and the mining companies to ensure stability in the sector.
[To echo Cho's sentiments - where was this cry for continuity and stability when it was time to abolish the Windfall Tax? - MrK]
“As to what the appropriate level of tax revenue should be is a subject that should be based on a dialogue between the government and the mines,” said Dr Kapoor.
“Stability is very important concern for most industries and frequent changes to the tax regime should be avoided. It is also important to continue the ongoing process of strengthening the capacity of the Zambia Revenue Authority to ensure full compliance with the existing tax laws of the land.”
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