Maravi

Letters - Windfall tax

Windfall tax
By Patrick Mulenga
Mon 10 Jan. 2011, 04:00 CAT

Editor,

The Rupiah Banda government’s inertia in adressing the shortcomings of the existing profit-based mine tax regime which is exacerbated by its unwillingness to re-introduce the mining windfall tax, will impact negatively on the Zambian economy and stifle the country’s efforts to attain the Millenium Develop Goals.

In the wake of soaring commodity prices, local mining companies have accelerated their activities, thereby placing a severe strain on the country’s transport and power infrastructure. In response to the infrastructure challenges this government is seeking external loans without first optimising internal revenue collections, especially from the resurgent mining sector. Mining companies are the major users of the country’s infrastructure.

Therefore, their contribution to the treasury should be proportionate to the benefits they are enjoying but this is not the case at present. Consequently, the burden of repaying infrastructure loans has been placed on individual taxpayers and sectors of the economy that do not enjoy the generous tax incentives accorded to the mining companies.

Although commodity prices are rising, it would be naïve to expect a corresponding increase in revenues from the mines even in the long term since the government itself has admitted that there are deficiencies in the existing profit-based tax system. Therefore, while commodity prices are rising and until a workable profit monitoring and verification mechanism is instituted, it is necessary to incorporate the more transparent windfall tax system to provide some relief and reduce the dependence on foreign loan finance. Foreign-owned mining companies have not exhibited exceptional levels of transparency in the past, hence the current scenario will merely give them yet another opportunity to maximise profits and reduce the payback period on their investments. Their main reason for coming to Zambia is to make profit, not to develop the Zambian economy.

Mining is the cornerstone of the Zambian economy. Therefore, an equitable mine taxation system is a matter of national concern because this is the key to the country’s future economic development. If the current administration continues to ignore all advice to have the situation redressed immediately Zambian citizens must themselves petition the shareholders, stock exchanges and governments of the countries where the mining companies originate from. Maybe this will work.

Patrick Mulenga
UK

Labels: WINDFALL TAX

posted by MrK @ 6:42 AM