Mining firms are claiming tax refunds from ZRA - Dr Mpande

COMMENT - So you have one mining specialist who is stating the obvious, and one mining industry apologist. Give me a break. Zambia needs development and services now, not 20 years from now. The money is needed to diversify the economy, and claiming government corruption as the reason why foreign mining companies should rob the country blind and on top of that get refunds for taxes they don't pay is pathetic. We can always deal with the government later on, but meanwhile those revenues are leaving the country, never to be seen again. And the windfall tax isn't going far enough. Just drop all taxes on the mines except mineral royalties tax on turnover, and raise it from 3% to 20%. Which is both substantive and easy to collect. Or just nationalize them.

Mining firms are claiming tax refunds from ZRA - Dr Mpande
By Chiwoyu Sinyangwe
Tue 29 June 2010, 03:20 CAT

MINERAL economist Dr Mathias Mpande has disclosed that mining firms are claiming tax refunds from Zambia Revenue Authority (ZRA), rendering the mining sector contribution the country’s Treasury in negative.

Dr Mpande, who described tax compliance by mining firms as voluntary, said only Chinese-owned mines were up to date with tax remittances for fear of being executed when they go back to their country.

But private consultant John Kasanga said increasing revenue earning from the mining sector was not likely to translate into improved social delivery by the government but instead augment fiscal spending to promote consumptive expenditure.

The duo was speaking last week during the Centre for Trade Policy and Development (CTPD) discussion forum organized in collaboration with Economic Association of Zambia (EAZ), Caritas Zambia and Evangelical Fellowship in Zambia (EFZ) at Mulungushi International Conference Centre in Lusaka.

Dr Mpande, who is also University of Zambia (UNZA) senior mining economics and engineering lecturer, said the net contribution of the mining tax revenues as a product of the total national revenue collection had consistently continued to be in negative terms.

He based his findings on the recent study he undertook with Kasanga on “How to do with the mining taxation” and the contribution of the mining tax revenue in the country.

“It is all negative. No positive to the tune of -13 per cent…the mining industry is getting out of Zambia Revenue Treasury instead of contributing to it,” Dr Mpande said.

“…the mining companies are duty exempt, VAT Value Added Tax exempt and then they have tax holidays of up to 10 to 20 years. How do you allow somebody who is not paying…somebody who is not whatever it is to go and claim from what other people have paid?”

He said poor tax collection from the mining sector was not only impacting negatively on the operations of ZRA but also the county’s revenue position as a whole.

“They don’t pay duty these mining companies…some of them are not paying income tax because they are tax exempt,” he said.

“But every month, they are going to ZRA to claim their VAT for which they are not supposed to pay and as a result ZRA is insolvent, bankrupt…from your little taxes you are paying, mining companies are taking back. That is not fair.”

Dr Mpande said there was need for the reintroduction of the 25 per cent windfall tax on copper to help the country to tap into the high profits mining companies were enjoying owing to the current high international metal prices.

H explained that with the current buoyant international metal prices, coupled with the projected output of 700, 000 metric tonnes of finished copper cathodes, the mining sector would have this year contributed tax revenues of about US $1.2 billion from projected earnings of US $4. 8 billion.

Last month, finance minister Dr Situmbeko Musokotwane said the country expected mining revenues to rise to about 30 per cent of the nation's total revenues by 2013 from around four per cent last year after mining firms “start making profit”.

He described as a scandal revenue collection by ZRA from foreign mining firms in the country.

“…There is purely voluntary compliance and only the Chinese are complying to pay because they fear that the Chinese government will go and execute them if they are not paying some taxes in Zambia,” he said.

Dr Mpande, who said taxes should be simple to administer, said ZRA did not have the capacity to administer the disputed variable profit tax.

“Nobody is willing to disclose voluntarily his income. What about mining companies that are even more sophisticated and can hide gold and say it is dusty. Whatever we collect is purely by voluntary compliance,” said Dr Mpande.

“So, if you think you can collect variable profit tax with complicated formulas to collect revenue from the mines, you will never collect tax. There is nobody in that ZRA office according to our investigations who can supervise those mining companies. No mining engineer, no geologist, no metallurgist, purely public administrators and customs officers. They don’t understand how the mining industry works and so, they can’t collect it properly. So, the easier, the better…”

But Kasanga opposed calls for the reintroduction of the windfall tax, arguing that the country’s debate should be anchored on how it spent money from the mining sector.

He said increased revenue from the mining sector was not going to guarantee the country’s improved fiscal space for social spending and investments aimed at making a dent on current weak infrastructure.

“Copper industry is not seen as strategic in this country but just as a source of revenue, and that is part of the problem,” Kasanga said.

“The debate on windfall tax can easily detract the nation from determining what the government ought to be doing with earnings from the copper industry. With improved earnings from the copper industry, it is easy to start building larger government, we see bigger cars, increase in gratuities for MPs members of parliament…we simply have got no strategy.”

He said the issue surrounding windfall tax had been used to whip peoples’ emotions when the country runs out resources and that it had never been debated in a sober manner.

He said there was need for the country to take a longer view of the mining sector to improve Zambia’s ranking among the major global players in copper exporting category.