Maravi

Paradoxes in mining sector

Paradoxes in mining sector
By Business Post Editor
Tue 13 July 2010, 09:10 CAT

Zambia has over the years been a recipient of substantial foreign investments especially in the mining sector. This has been necessitated by the privatisation of the mines a couple of years ago by Frederick Chiluba’s government. It cannot be denied that since then, mining has been one of the most favoured sectors by the government in Zambia.

Placing the mines in private hands meant that any income to the state will not directly be from sales and profits from the mines, but rather from any taxes that can be levied on the companies – in the form of income tax for employees, VAT paid on services purchased by the mines, border taxes paid on imports and exports, corporate taxes on profits, and mineral royalties on sales of copper – although these are paid just by a few mining companies.

However, as we saw not too long ago, in their Development Agreements, the mining companies managed to negotiate exemptions from paying most of these taxes. Therefore, mining contributions, in general, to total tax revenues are extremely small. This is a source of significant resentment among most well-meaning citizens of this country as the government has been known to be favouring international investors over local business owners.

It is clear that the mining industry only contributes to government revenue through the taxes paid by its employees in form of income tax. However, in their Development Agreements, companies negotiated to pay lower corporate tax rates than apply to other industries. Because they are also able to roll losses from previous years forward and to write off profits that would have been taxable, the mining sector barely contributes at all. We are aware that mining contributes less corporation tax than smaller sectors such as the financial services and telecommunications sector.

The mining sector also claims back from the Zambian government all of the VAT that it pays on goods that it buys locally. Since the company from which these good were initially bought will have paid the VAT aspect of the price charged to the government, and the government then pays that back to the purchaser, VAT contributions show up as a minus figure – a subsidy from government to the mines.

And as Situmbeko Musokotwane, the Minister of Finance and National Planning, has stated in his Letter of Intent to the International Monetary Fund, mining sector contributions to Zambia’s Gross Domestic Product (GDP) over the last decade have not been matched by commensurate contributions to domestic revenues. This is very correct. And it is sad that those charged with the affairs of managing our country’s resources have allowed this to happen for such a long time. Dr Musokotwane himself, as our Minister of Finance, therefore has the duty to ensure that the mines’ contribution to domestic revenue is in line with their GDP contribution. But we wonder if this is an easy task for the current regime owing to their strong opposition to the windfall taxes.

We are aware of the fact that most of these mining companies in Zambia today do not meet most of their tax obligations. Dr Musokotwane says the government has commenced discussions with the mining sector aimed at resolving legacy issues related to the Development Agreements as well as the mines’ adherence to the current tax regime.

But we wonder what the outcome of these discussions will be. We say this because our people have not been part of these agreements that government enters into with the mines although the mining activities take place in communities where people live. In extreme cases, people have been displaced and end up suffering. We have not forgotten that at the time when Development Agreements were still in force, these were highly guarded documents whose contents were considered top secret – only known to the mines themselves and the top government officials.

It is, therefore, sad that the mines continue to contribute minute amounts from their earnings out of our mineral resources despite making enormous profits. This is all as a result of this government’s decision to scrap windfall taxes which would have seen these mines paying reasonable amounts for our mineral resources. But this is what we expect from leaders whose main interest is to satisfy their own needs at the expense of the many suffering citizens of our country who survive on less than a dollar a day.

Labels: CHILUBA, DEVELOPMENT AGREEMENTS, MINING, PRIVATISATION

posted by MrK @ 2:32 PM