Maravi

FQM claims refund for taxes

FQM claims refund for taxes
By Chiwoyu Sinyangwe and Mutale Kapekele
Wed 17 Nov. 2010, 04:01 CAT

FIRST Quantum Minerals (FQM) has said President Rupiah Banda’s regime is likely to refund the money paid in respect of the 2008 mining fiscal regime. But chairperson of the parliamentary committee on estimates Highvie Hamududu has challenged the government to tell the nation when mines will graduate to tax paying positions.

According to FQM’s report on operational and financial results for the three and nine months ended September 30, 2010, the company has recognised a tax expense in accordance with applicable laws from time to time, notwithstanding Development Agreements.

FQM, a fierce critic of the 2008 mining fiscal regime changes which included a windfall tax on copper sales revenue, a new variable profit tax, a concentrate export levy of 15 per cent, an increase in the royalty rate to three per cent, an increase in the income tax rate to 30 per cent, has been winning kudos in the government circles for being the only foreign mining firm paying ‘normal taxes.’

“Following consultation with external legal counsel, the company FQM assessed there will be a high probability of recovery from the GRZ of payments made in respect of these taxes,” FQM stated.

“The company, through its Zambian subsidiaries, is party to Development Agreements with GRZ for its existing operations which provide an express right to full and fair compensation for any loss, damages or costs (including interest) incurred by the company by reason of the government's failure to comply with the tax stability guarantees set out in the Development Agreements, and rights of international arbitration in the event of any dispute.”

FQM, Kansanshi’s copper and gold mine’s parent company, is also happy that the government last year issued a temporary exemption of the concentrate export levy of 15 per cent to allow the company to export the copper in concentrate that cannot be treated locally due to the lack of smelter capacity within Zambia.

FQM stated that in addition and reflecting the enforceability of the Development Agreements, the company expected an ultimate repayment of taxes permitted under Development Agreements.

“Under the new President, the government reviewed these tax changes and proposed that the new windfall tax be removed, the deductibility of capital allowances be increased back to 100 per cent in the period of expenditure and to allow hedging income be part of mining income for tax purposes,” stated FQM.

From the highlights of the company’s reports, working capital movements during the third quarter of 2010 include an increase in accounts receivable of US $86.4 million as a result of a significant increase in copper price, and a decrease in taxes payable due to payments of US $115 million made by Kansanshi to the government.

Apart from Kansanshi, almost all the mines in the country have not been paying tax, claiming that they were not making any profits owing to huge investments made in the mines at the time of privatisation.

But Hamududu said the mines could contribute 30 per cent to the country’s revenue if they all graduated to a tax paying position, a 28 per cent improvement from the sector’s current contribution of two per cent.

Hamududu said this during the Economic Association of Zambia (EAZ) business forum in Lusaka last week.

Recently, Kansashi Mine graduated from its eight-year carryover tax losses and contributed most of the US$1.6 billion revenue that had so far been collected from the mines, although it is now trying to claim a repayment of the money from the government.

“The government should explain its difficulties in revenue generation. Otherwise, people will continue to complain,” Hamududu said.

“The government is not clear on mining taxation. They have argued that they removed windfall tax because windfall prices can go away and that taxation must be long-term, but they have not been clear; they must be clear on their positions. We might not agree with them but they should be clear. They should tell us when all the mines will come to tax position. For eight years, Kansanshi had a loss carryover but now they have graduated and from just that one mine, we have managed to raise so much. Imagine if all the other mines were contributing, how much are we going to raise? We will generate as much as 30 per cent for the tax basket from the mines.”

He said the government had not given a knowledgeable argument to explain what was going on in the mines.

“It’s not that they don’t have an explanation, they do,” said Hamududu. “The problem is that they are simply not making their argument clear when they talk about the new tax regime and the variable corporate tax which they claim is better than windfall tax.”

The government has argued that people who are calling for the windfall tax have a poor grasp of taxation issues or basic economics, further claiming that the removal of the windfall tax will not lead to loss of government revenue as the variable tax still captures any windfall gain that may arise in the mining sector and that the latter takes into consideration the costs of production.

But several experts have argued that a windfall tax is easier to implement than variable corporate tax.

History has proved that countries that used profit variable taxes have had trouble getting accurate profit figures because it is easier for companies to hide them through inflated costs whereas in a windfall tax, the government and citizens can monitor the profits.

Labels: FIRST QUANTUM MINING, HIGHVIE HAMUDUDU, TAX EVASION, TAXATION

posted by MrK @ 4:22 PM