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Sierra Leone finance minister urges Zambia to reconsider windfall tax

Sierra Leone finance minister urges Zambia to reconsider windfall tax
By Mutale Kapekele and Chiwoyu Sinyangwe
Wed 20 Oct. 2010, 04:00 CAT

SIERRA Leone Minister of Finance and Economic Development Samura Kamara has advised Zambia to re-introduce the windfall tax. And Professor Oliver Saasa has called for sustained public pressure to compel the government to reintroduce the popular windfall mining tax or raise mining taxes in view of current high copper prices.

In an interview in Washington DC, Kamara said mineral rich countries on the continent like Zambia should always be alive to the fact that mining investors were solely interested in growing their balance sheets and that it was up to individual countries to generate revenue from the sector.

“In the case of Zambia, although I must admit that I am not very familiar with the reasons for the government to reverse the windfall tax, it is however very important that they (government) reconsider that position,” Kamara said. “In Sierra Leone which is a mineral rich country, we will definitely not go the Zambia way.”

Kamara said there was need for African countries to look at the quality of investments that were getting into the mining sector.

“We need to address incentives packages vis-a-vis the tax we hope to generate from the mines,” he said. “There has to be a balance, this is usually a delicate balance but it has to be there. We should decide if we are to get tax upfront or after wards but we should ensure that our people see the benefits of our natural resources. Investors’ business plans are about selling shares but we also don’t want to lose our tax. The challenge is getting the balance.”

Kamara further urged African countries to improve their capacity to negotiate for mining investments to favour the continent and their people.
“We need to strengthen our negotiation skills especially when dealing with Chinese investors who are very good negotiators. Let’s match that skill and come up with win-win solutions,” Kamara said.

“Economics of the world are changing. Africa is the last station for development and it has enough opportunities in terms of mineral wealth. The financial sector is growing and all we need now is to strategise on how to attract global interest that will favour our economic growth.”

And several stakeholders in the country have expressed concern at the low revenue the government is collecting from the mining sector despite the high metal prices after having suspended the windfall taxes under the Rupiah Banda regime.
Zambia’s key economic partner the International Monetary Fund has already noted with concern the low revenue from the mining sector after the suspension of the windfall taxes.

IMF resident representative Perry Perone last week observed that the contribution of mining to Zambia’s Treasury was very small though the sector comprises a very large part of the economy.

He said the mining sector was contributing about 70 per cent of the country’s foreign exchange earnings, constituting 9.7 per cent of the total economic output, while tax contribution stood at a paltry one per cent of the total collection by ZRA.

“The revenue trends are declining and that is not a secret, tax revenues have been trending down...Direct taxes like income tax have been relatively stable but the real problem has been in indirect taxes and of course the issue of the mining sector which contributes on a very small amount to the Treasury even though it comprises a very large part of the economy,” Perone said.

But both President Banda and finance minister Situmbeko Musokotwane have maintained that there won’t be a reversal over the suspension of windfall taxes citing the threat of scaring away mining investors despite the copper current super high prices peaking at a historic high of over US$8,000 per tonne.

And Prof Saasa regretted that the government had continued to be adamant on maximising Zambia’s revenue receipts from the vast mining sector despite the current record high copper prices.

President Rupiah Banda and his key ministers like
Musokotwane recently heightened opposition to the
reintroduction of the windfall tax on the foreign mining companies despite calls from key international organisations like the International Monetary Fund (IMF) for increased revenue collection from the mining sector.

The calls come in the wake of current robust international copper prices which last week traded around US $8, 200 per tonne with respected global market leaders Goldman Sachs predicting that within a year, copper prices will hit US $11, 000 per metric tonnes, buoyed by increased demand for copper as the global economy rebounds.

In an interview, Prof Saasa said Zambia had no option but to revisit and raise mining taxes.

“I feel that the windfall tax has to be introduced or we have to revise the tax regime in a manner that maximises the receipts to the treasury. I do not believe that we have an option at this level,” Prof Saasa said. “I was a little bit disappointed that no reference whatsoever to the mining regime was mentioned in the new budget of 2011. Even mentioning that we are going to discuss or negotiate with
them mining firms. We needed to do that.”

Prof Saasa accused the government of giving preferential treatment to the mining firms which did not commensurate to their contribution to treasury. He further accused the government of abetting the mining firms’ failure to pay legitimate taxes like the windfall tax which was introduced under late president Levy Mwanawasa.

“You imagine if you and me resisted of refused to pay tax what would happen? ZRA Zambia Revenue Authority would be knocking on your door,” he said. “So, even at the level where legitimately they are supposed to pay tax, they are refusing...”

Prof Saasa said there was need for the government to declare its seriousness towards the mining sector by getting rid of the ultra vires Development Agreements, and also introduce a clear tax regime, not the current variable profit.

“If we will be talking about variable profit tax as the basis for harvesting, as a country from the copper receipts from the good price on the global market, I have difficulties with that,” said Prof Saasa.

Labels: OLIVER SAASA, SAMURA KAMARA, WINDFALL TAX

posted by MrK @ 2:25 PM