Maravi

Mining tax policy

COMMENT - This editorial is in response to Dan Haglund's description of the 'failure' of the GRZ to effectively tax the mines. However it is part and parcial of globalisation that taxes are shifted from corporations to workers - usually coinciding with a pay cut or wage freeze - so that taxes now really come out of workers salaries. Another way for corporations to 'increase their efficiency'. It is systemic, and the neoliberal economic globalisation model has to go. We need Demand Side Economics. And yes, the MMD is in the pockets of the mining industry. Tax industry and FDI, raise people's wages to create Zambian markets, build infrastructure, give cheap credit to entrepreneurs and farmers, protect local producers through tariffs on imported goods that are also produced domestically, and strengthen the currency (eliminate debt through taxing the mines, create a gold or copper reserve, start taxing and stop borrowing) to make imports of non-Zambian produced capital goods are much cheaper.

Everyone should also read this article, which deals more with the US economy. In Zambia the problem is retention of earnings (lost through the foreign owned mining industry), not as much recirculation of earnings. The principles are good ones though: PROGRESSIVE ECONOMIC PRINCIPLES: Creating a Quality Economy, by Mark Pash, CFP, with Brad Parker

Mining tax policy
By The Post
Sun 10 Apr. 2011, 04:00 CAT

The assertion by an Oxford policy management consultant, Dr Dan Haglund, that Zambia has failed to implement an effective mining tax policy due to the direct influence by the Presidency and other senior government officials goes to affirm a widely shared consensus among most commentators and experts on the Zambian mining tax regime.

Dr Haglund’s research findings are that the Zambia Presidency and government officials are too close to the mining companies to make and administer an appropriate mining tax policy that would benefit the country.

Due to this unhealthy relationship, the government is captive and denies itself the much needed administrative, political and fiscal space to effectively regulate and tax the mining companies.

The government cannot enforce labour standards. It is unable to address the negative environmental and social impacts of mining.

And worse still, it is unable to take advantage of the prevailing high base metal prices to generate resources that would finance the required social and economic development. An opportunity for economic diversification is being missed. And so is the hope for social development thrown in the dustbin.

Why would a government be this reckless with an exhaustible national resource?

Why would the Presidency and government officials be so close to mining companies to a point of neglecting its own people?

Why would an elected leadership tolerate and indulge in this form of neopatrimonial governance?

The citizens of this country deserve answers to these questions. They deserve a better deal from the foreign direct investments being made in mining. They deserve a Presidency and government that is caring and sensitive to their miserable daily existence.

The global projections for base metal prices are quite positive in the short and medium term. There is a good chance of the prices remaining relatively high over the years to come.

A window of opportunity therefore still exists for Zambia to gain from its vast mineral deposits.

A new mining policy and taxation paradigm is therefore urgently required.

Greater transparency around the awarding of contracts is urgently needed.

Transparency around the awarding of mining contracts and agreements has been an area of concern for some time.

Major stakeholders such as the trade unions, professional bodies and networks, civil society organisations, the relevant international cooperating partners and many others feel left out during the critical moments when their expertise would have been required.

Lack of transparency has led to a situation where elements of state capture, collusion, misinformation, lopsided contract conditionalities, under-valuation of assets and incomplete reporting arrangements have tended to characterise mining contracts and concessions.

We recall that it had to take initiatives of the civil society in order to expose the Development Agreements whose lavish incentives resulted in revenue losses to the country.

The government treated them as “secret documents” and therefore denied its own citizens and electorate the true nature of its dealings with the mining companies.

We acknowledge the fact that mining is a complex undertaking.

But this is more of the reason why no single stakeholder can possess the knowledge, facts and insights that could ensure that mining arrangements and the associated taxation regime present a win-win situation for the country and the investors.

Further, enhanced transparency creates trust amongst all stakeholders that decisions made are fair. It also fosters policy consistence and predictability – elements that are critical for sustained future foreign direct investments in the country.

In other words, transparency is good for both the country and the investors.

We therefore expect Zambia to join the Extractive Industries Transparency Initiative (EITI) this year as planned.

The EITI process requires comprehensive and publicly accessibly reporting of all payments by mining companies to the government.

This will be a wise move in building transparency and winning back the lost public trust

There is urgent need to improve capacity at the Zambia Revenue Authority.

The pilot audit report of Mopani Copper Mines Plc has exposed glaring weaknesses in the country’s capacities to adequately tax the mining companies.

It is a shame that Zambia is still without the appropriate taxation capacities for such a strategic industry 46 years after independence.

Of course it is common knowledge that high levels of expertise are required in mining taxation.

The mining companies themselves have often pointed to the need for any new tax regime to consider the complexity and differences in the mining methods; especially between deep shafts and open cast mining; wetter and dry mines; old mines and green-fields and the overall impact on production cost and profitability.

They have also raised concerns on whether the tax regime should be revenue based or profit based. These are indeed critical issues not to be overlooked.

However, global experience shows us that a careful mix of corporate tax, mineral royalty tax, windfall tax to be triggered at specified price levels for different base metals and the introduction of appropriate regulation for tracking production, costs and revenue helps to address the concerns of the mining companies as well as ensuring that a country continues to benefit from mining investments.

Countries that have done well in this regard have had initially to invest in the appropriate expertise.

Currently, the Zambia Revenue Authority does not have the adequate expertise to monitor, audit and tax the mining industry.

Urgent and intensive efforts are required to beef up the capacities of ZRA, the Ministry of Mines and independent local consultants in mining taxation, costing, law, economics and other relevant fields. Without such expertise, the country will remain vulnerable to raw and unfair deals and commercial practices.

We also need to engage better-trained and better-paid environmental and safety inspectors.

Without strict enforcement of environmental and safety standards, mining can turn into a hazardous and life-threatening industry that will haunt our lives for decades to come – long after the actual mining activities have ceased.

It is for this reason that environmental and safety standards have to be state-of-the art and enforced with a zero tolerance.

To attain this, better-trained environmental and safety inspectors are a MUST.

It is high time we reviewed the existing institutional arrangements, competency requirements and remuneration packages for the inspectors.

The cost of inaction in this area will be too high for future generations to bear.

There is need for a concerted strategy to develop local manufacturing capacity.

Indeed, most of Zambia’s minerals are still exported in semi-processed form. This is at the first phase of the value chain and hardly the most beneficial in economic terms and employment generation.

On the other hand, the country imports vast amounts of copper-related end products at high cost.

Opportunities for improving the value chain by developing local copper manufacturing capacity go begging.

The chances for creating employment for the masses of unemployed Zambians are missed.

We appreciate the initiative behind the Chambishi multi-facility processing zone.

It is a step in the right direction. But it takes more for the country and its citizens to fully benefit from a mineral based local manufacturing industry.

A concerted strategy is required that will guide investments in product and process research; systematic patent contracting and acquisitions; equipping a cadre of college graduates with the appropriate skills; and public-private arrangements that encourage local shareholding and establishment of linkages to suppliers and service providers country-wide.

There is need for earmarking of revenues between community, local councils and central government.

If there are lessons to draw from major mining countries, one of them is that communities where the mining is taking place are not necessarily the ones that end up benefiting and this ultimately leads to tension and in some cases dangerous confrontations.

In the worst-case scenario, corrupt elements in central government end up benefiting more than the entire country.

This is why the alluded to closeness between the Zambian government and mining companies has to be checked.

If left the way it is, a foundation would be built for a perverse form of corruption that will jeopardise the country’s future.

Equally important is the earmarking of revenues between community, local councils and central government. Why is the government not embracing this long standing suggestion?

What has it got to lose?

It is time for communities, local councils, the Parliamentary Committee on Estimates of the National Assembly and all progressive thinking Zambians to demand action on this issue in the interest of peace and fairness.

Dr Haglund and many other commentators have no direct interest in the politics of Zambia.

They base their recommendations on evidence. Ironically, even institutions such as the International Monetary Fund and the World Bank, which in the past were the usual scapegoats for policy inertia, are now all loudly criticising Zambia’s mining tax policy.

Despite all this criticism, Rupiah Banda’s MMD government is unmoved.

After all, his focus and that of his government officials is on self aggrandisement and not to serve the people of Zambia.

Rupiah and his friends are benefitting from mining because the mining corporations give them all sorts of personal favours – they bankroll their election campaigns. For this, they are ready to sell the taxes that are due to our people.

This is criminal. This is corruption. This is what happens to a country when greed and selfishness reign supreme.

Labels: MINING, TAXATION, WINDFALL TAX

posted by MrK @ 3:01 PM