Windfall tax can be retrogressive - Simuchile
Windfall tax can be retrogressive - SimuchileBy Chiwoyu Sinyangwe
Tue 12 June 2012, 13:20 CAT
THE government should increase collection of revenue from the mining sector but not through reintroduction of the 2008 windfall tax, says a local economist, Hobby Simuchile.
The government in 2008 introduced a 25 per cent windfall tax and separated hedging income from mining income for tax purposes but abolished the legislation following protests from mining companies following the depression in copper prices.
But following the ascendancy of the PF to power, calls for the government to introduce the windfall tax have heightened and not even vehement opposition from finance minister Alexander Chikwanda who described proponents of the windfall tax as "lunatics" has worked to dissuade calls.
But Simuchile said although there was need to raise mineral revenues from the mines, the windfall tax would not be ideal.
"A windfall tax cannot be the basis for a tax policy and is arguably not in the best interest of the Zambian economy," he said in an interview.
"As implied by the name itself, a windfall tax is a tax assessed on a company or industry when unusually high revenues are made, making it a temporary tax measure. True, whilst the windfall tax can be an effective tool for generating tax revenues from the mines, because it is charged on revenues, it could actually damage the industry and deter much needed investment and employment creation. To this effect, the windfall tax can be retrogressive."
[I call BS on all counts. Low copper prices themselves 'deter much needed investment and employment creation'. Also, mining will never employ more than a fraction of 1% of the labour force. Job creation is not the strength of the mining industry, getting copper out of the ground at $8900 per tonne and $2000 per tonne cost is. It is when prices are high that the people deserve to reap the benefits of what are after all THEIR OWN RESOURCES. Zambian copper does not belong to Anglo-American de Beers, Rio Tinto, Equinox, the Finance Minister, or this mr. Hobby Simuchile. They belong collectively to the people of Zambia, and when they don't get paid, that's theft. Read UN Generally Assembly Resolution 1803 of 1962, which deals with Mineral Sovereignty. - MrK]
Simuchile said if the government had continued with the 2008 windfall tax, most mines would have had to cease production at a time when prices were at their highest, giving neither Zambia nor the mines any advantage from high prices.
[Proof? - MrK]
"One therefore understands the current government's reluctance to reintroduce the windfall tax," he said.
[No I don't. It makes no sense. I would like to thingk that the PF is not corrupt when it comes to the mines, but there is a lot of money involved. - MrK]
Simuchile said the focus must be on formulating and implementing an effective and progressive tax regime that responds to high metal prices and guarantees reliable streams of revenue for the Treasury whilst at the same time taking into account production costs.
[That's the Windfall Tax you are talking about. The Windfall tax is progressive and the first bracket is priced well above the cost of production. - MrK]
"The Zambian authorities must seek to formulate and implement a win-win tax regime that enables the Treasury to collect enough tax revenues, whilst at the same time allowing the mines to make an acceptable return on their investment," he said.
[No they don't need to 'formulate a win-win tax regime'. They need to maximize the returns from the mines to the Zambian tax collector, on behalf of the Zambian people, who OWN these natural resources. - MrK]
"A clear, fair and stable mining tax regime should be a positive factor to investors considering Zambia as a potential investment destination."
And Simuchile said although the government wanted the variable profit tax to function as a windfall tax, then it is inappropriate for capital allowances to be entirely available in one year.
['Profit' is always going to be fungible, as Vice President Guy Scott so eloquently explained before the PF came to power. - MrK]
"The computation of this Variable Profit Tax should be based on annual Operating Profit rather than Taxable Profit (so that no carried forward losses are considered). This would be similar to recent changes introduced in Peru and Chile," said Simuchile.
"For Variable Profit Tax, Capital Allowances be adjusted to 5-year straight line basis from the existing 100 per cent first year Capital Allowance. If these measures are implemented most mines would be in a tax-paying position, where at present, only a small minority of mines are in that position. This way, more revenue will accrue to the government, and sooner, which is exactly what we Zambians expect and demand."
[Well that admits the failure of the Variable Profit Tax. Is Sitimubeko Musokotwane going to be held accountable for defending this policy that is losing the Zambian economy hundred of millions of dollars, or in my opinion $1.5 billion a year in both taxes and unpaid dividends? Likewise, if this new variation of the variable profits tax (on operating profits) doesn't pan out, will minister Alexander Chikwanda be held accountable?
Zambia needs to get serious about collecting all the value of the people's resources. Not doing so is the real reason why most people live below the poverty line. Any talk about development planning is meaningless without the ability to fund it. The money is in the mines, the ore belongs to the Zambian people - go and get it, and don't come up with these schemes that keep the foreign mining houses happy. - MrK]
Labels: ALEXANDER CHIKWANDA, TAXATION, WINDFALL TAX
posted by MrK @ 2:09 PM
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