Maravi

Experts warn govt over refusal to re-introduce windfall taxes

Experts warn govt over refusal to re-introduce windfall taxes
By Fridah Zinyama
Tue 02 Mar. 2010, 04:00 CAT

GOVERNMENT’S refusal to re-introduce the windfall tax on grounds that it will erode investor confidence is not reason enough to deny the country the much needed revenue which can be obtained from the mining sector, investment analyst Roman Kambone has observed.

Other countries in the region like South Africa that were prompted to postpone levying mining royalties due to the recession have this year decided to re-introduce the royalties due to the recovery of the economy.

South Africa, which has the largest number of mining companies in Africa, will from March 1 this year levy mining royalties on minerals disposed of or exported from March 1, 2010.

South Africa's first recession in almost two decades hurt company earnings and household budgets.

Due to the recession, government revenue totalled 73.7 billion rands short of the targeted 731.235 billion rands for 2009/10.

Commenting on the South African government’s decision to resume taxes on the mining companies’ mineral royalties, Kambone said the South African government had recognised the important role that the mining sector plays in national development.

“We would like our government to emulate their counterparts’ decision and re-introduce the windfall tax this year,” he said.

“There is no way that government can be going to international lending institutions like the World Bank to ask for money at a cost for developmental projects when the country has potential revenue within its borders which it is neglecting to exploit.”

Kambone said the government’s position on the windfall taxes was unacceptable as it was denying the country of the much needed revenue.

“I believe that government is admitting its lack of skills in analysing an investment project from start to finish in refusing to re-introduce the windfall tax,” he charged, adding that if the government had the necessary skills they would not be letting profit making companies off the hook from paying the windfall taxes.

[Unless they're corrupt and have taken bribes to do just that. - MrK]

Kambone said Zambians were demanding the re-introduction of the windfall taxes because there were a lot of development projects which required revenue.

“Government should stop dealing with investors with an inferiority complex because it is costing the country a lot of money,” he said.

“Government officials always dealt with investors from a point of weakness, as if the country had nothing to offer that any investor would not want to pay its full value for.”

Kambone said it was time mining companies operating in Zambia started being responsible and stopped being hypocritical.

“We demand that these mining companies saying that they are not making profits release their cash-flow reports from 2003 to date,” he said. “What the country will see are healthy cash-flows which the mining companies are at pains to hide.”

And University of Zambia dean of school of mines Dr Stephen Kambani said it was saddening that the Zambian government had continued refusing to re-introduce the windfall taxes despite the change in fortunes for the mining companies.

“What our government should realise is that if they are not going to tax the mining companies, the country will lose out, even future generations to come will suffer for the decisions that government is making now,” he said.

Dr Kambani said it was unfortunate that government had continued pandering to the whims of mining companies than listen to the concerns of its citizens.

“We are not asking for much... all we want is what government should have done without much pressure from the public,” he said.

[Maybe that is part of the problem - if you don't ask for much, you're going to get less anyway. - MrK]

“Whether they want to admit it or not, the mining companies at the moment are making profits and since prices are at around US $7,500 per metric tonne, they have a windfall for which they did not plan for, hence it is only decent of them to give some of the unaccepted benefits to Zambians who have afforded them the opportunity to cash in on the windfall.”

Dr Kambani said it was important for the government to realise that they were dealing with exhaustible resources and not replenishable ones.

“Once depleted that is the end of the story... the country would either have something to show for it or not,” he said.

Dr Kambani said re-introducing the windfall tax would not be a dis-incentive for the mining companies, as other countries were doing the same because of the high metal prices on the international market due to the recovery of the global economy.

“The investors in the mining sector should realise that ordinary Zambians would like to share in the windfall prices of copper, and they can only do so if the mining companies are willing to let go of a certain percentage of their earnings which they had not planned on making, as they were an expected,” he said.

A windfall tax is levied by governments against certain industries when economic conditions allow those industries to experience above-average profits.

These taxes are primarily levied on the companies in the targeted industry that have benefited the most from the economic windfall, most often commodity-based businesses.

As with all tax initiatives instituted by governments, there is always a divide between those who are for and against the tax.

The benefits of a windfall tax include proceeds being directly used by the governments to bolster funding for social programmes, however, those against windfall taxes claim that they reduce companies' initiatives to seek out profits.

They also believe that profits should be reinvested to promote innovation that will in turn benefit society as a whole.

Windfall taxes will always be a contentious issue debated between the shareholders of profitable companies and the rest of society.

This issue has come to a head in Zambia, because after the recession, the global economy is recovering and commodity prices are increasing, copper is set to reach a peak from 2010-2013.

Labels: ROMAN KAMBONE, STEPHENS KAMBANI, WINDFALL TAX

posted by MrK @ 6:08 AM