Maravi

Zambians haven’t understood windfall tax - Mutati

COMMENT - The mines have been taking *at least* $10 billion out of the economy since 2004, and they are set for record profits this year. So even if they invested $4 billion, they have made that back long ago. For the minister to claim that as a reason not to tax the mines is just making more excuses. Of course pit mining is more expensive than strip mining, but most mines in Zambia are strip mines or 'blue sky mines' as they say in Australia. That's why they could recover their costs so quickly. To halt their massive tax evasion, we need an easily collectable tax like the Windfall Tax, or renationalize the mines.

Zambians haven’t understood windfall tax - Mutati
By Joseph Mwenda and George Zulu
Mon 29 Nov. 2010, 04:01 CAT

COMMERCE minister Felix Mutati says Zambians have not comprehended well the arithmetic of windfall tax. But South Africa’s envoy to Zambia Moses Chikane urged the government to consider reintroducing the windfall tax in the mining sector. In an interview, Mutati said it was important for people to understand the mathematics involved in the windfall tax.

“You need to understand that any tax system must be equitable, must focus on the sector and must not be able to discriminate companies within the same sector,” said Mutati on Friday. “One of the fundamental explanations that we must make and that must be understood is the nature of investment in the mining sector.”

Mutati explained that the windfall tax had its own challenges.

He said Zambia had underground and open-pit mines and their cost structures were totally different.

“The windfall tax does not recognise the cost structure of the mine because it attacks the top line. So the company that has got smaller cost structure, benefits a lot more compared to the company with extended cost structure because windfall tax by its design does not recognise the cost structure,” he said.

Mutati said the mining companies had revived the sector and they needed to recover their investments.
He said the benefits of the returns through taxation in the mining sector would have a delayed effect because of the colossal investment made.

“Since privatization, over US$4 billion has been invested in the mining sector… so when you do massive investment, people must recover what they invested, just like we do in any industry,” he said. “We are into that phase where there is a recovery of their investment and truly the contribution of the mining sector may not be as much but because they put in US$4 billion in investment, it’s purely a delayed effect. We will cross the graph in the next year or two. It’s like a diesel engine; it takes time to pick up, but when it does, it gathers speed. Mining investment has similar effects.”
He said it was irrelevant to accuse finance minister Dr Situmbeko Musokotwane of not being interested in re-introducing the windfall tax.

“The whole philosophy of taxation is that you must share the benefit of the process, that is what is called equity. That means, I take my revenue, I take out my cost, then we share the spoils,” Mutati said. “It’s not about Honourable Musokotwane. It’s about reviving investment in the mining sector and what motivation you should put in order to attract long-term investment.

So you the experts must come and get the graph of the rationality of taxation and how sometimes this delayed effect can be misconstrued as not accruing much revenue.”

But High Commissioner Chikane said the government needed to consider the people’s demands on the windfall tax because the copper prices on the international market were currently high.

“The windfall tax was removed because of the world economic meltdown. Prices of commodities such as copper had gone down and even the demand was not attractive but now that prices have increased slightly above US$8,500 per tonne there is need for your government to reintroduce the windfall tax because it will benefit many,” High Commissioner Chikane said.

He also said China provided alternative economic development for Zambia and Africa.

“China’s offer of economic development is important to Zambia as a nation and Africa as a continent because we are able to trade freely.

We can see development in road construction, education, health and agriculture which our colonial masters failed to do in a long time,”

High Commissioner Chikane said.

He said with China’s economic agenda, Africa was able to handle its problems independently without external political interference.

“We can trade freely and trading is no longer viewed as a way of imperialism. China has promoted a win-win situation which should be viewed as an opportunity for prosperity if bargained for,” said High Commi-ssioner Chikane.

Labels: FELIX MUTATI, MINING, WINDFALL TAX

posted by MrK @ 10:02 PM