Tuesday, December 11, 2012

Chief Mpande on mining taxes

COMMENT - The problem is not uncertain economic policies, the problem are the counterveiling forces (Anglo-American De Beers) that keep the Zambian government from collecting it's taxes. They certainly don't appreciate the privilege of owning mining deposits in Zambia, or the privilege to do business in the country. They want it all, and they have managed to bribe (Situmbeko Musokotwane) and intimidate their way into not having to pay taxes - unlike the Zambian middle class. We need a continent wide or at least region wide (SADC) coalition to start collecting taxes on natural resources without facing retaliation.

Chief Mpande on mining taxes
By The Post
Tue 11 Dec. 2012, 10:20 CAT

Chief Mpande of the Mambwe people of Mbala has joined the voices calling for increased tax collections from Zambia's mines.

Chief Mpande says the government should raise sufficient resources from the mining sector to finance development programmes. Very few people will object to what chief Mpande is saying. The World Bank, the International Monetary Fund and many other multilateral and bilateral agencies have urged the government to find ways of increasing its income from mining taxes.

Zambia, as a country, could benefit more than it is currently benefiting from the mining industry. All countries that depend on natural resources face the shared challenge of taxation: determining tax levels and administering tax revenues in an efficient, effective and orderly manner that balances the needs of government and investors.

Mining depletes a valuable natural asset and taxing mining corporations is a way of generating savings that can be redeployed to increase the productive capacity of the rest of the economy, and thereby help sustain the country over the long term. Despite the revival of our mining industry over the last few years, its contribution to government revenues has remained relatively low.

The mining industry accounts for 15 to 18 per cent of the Gross Domestic Product and exports over US$3 billion worth of copper per annum, but contributes just 8 per cent of total revenue.

This is not something we should accept or do nothing about. It is an unacceptable state of affairs that needs to be changed. There is scope for increasing government revenues from the country's mining activities. There is scope to improve the progressivity of the current mining tax regime.

But we share the bitter feeling of impotence that our government may have over this issue.

It is not easy to change mining taxes overnight because a less predictable regulatory environment could be seen as increasing instability and risks for mining investors. And given the large upfront investments, long-term commitments and long investment payback horizons inherent in the mining industry, less stable and predictable policies would scare away investors.

Mining investors need stable and predictable policies which they see as being essential in evaluating mining projects' perceived risks and economic viability. Frequent changes in regulations and indeed laws may create an air of uncertainty for investors.

Over the last few years, it has been unclear which direction Zambia was taking in relation to the taxing of mines. We had the introduction of windfall taxes; we had the removal of windfall taxes; we had the lowering of the rate of royalties and their subsequent increase; and we had the lowering and subsequent increase of the corporation tax and so on and so forth. In a word, Zambia's recent history of regulatory changes did act as a constraint on both new investment as well as the continued operation of some established mines.

It would seem that the last two or three governments of the MMD did not have a clear and consistent policy on how mining activities should be taxed. Each successive MMD regime brought with it some changes in the taxing of the mining industry. Consistency and predictability was thus, in some way, lost. It is the duty of this government to restore or establish consistency and predictability in the taxing of the mining industry.

There have been some changes in the mining tax regime, albeit very small ones, introduced by this government. The debate is still raging on what needs to be done, on what will constitute appropriate taxing of the mines.

We share the government's cautious or prudent approach to this issue. It may not be prudent to act in a hasty manner. It may not be prudent to make any further major changes to the mining fiscal regime at this time. A lot of work is needed before much can be achieved in this area. There is need to mobilise technical assistance from cooperating partners and from the International Monetary Fund and World Bank to enhance mining tax and improve the collection of mining taxes which are currently underperforming.

We need help to raise the country's capacity to collect taxes. There is need to increase our knowledge and expertise in valuing what is mined and ascertaining what its worth is. Today, we have many minerals that are being shipped out without being properly processed. We cannot fully ascertain the value and composition of what is being shipped out for us to tax it properly.
There is need for a new mining regulatory and tax regime that balances the interests of the mining investors and the country. We need to create a win-win situation.

Right now, we have a situation of disagreement over the tax regime. The government and the mining industry are failing to find an equitable balance between the commercial interests of the industry on the one hand and, on the other, the industry's contribution to national prosperity. Such a regime needs to cover, in a clear and transparent manner, taxation, as well as the government's obligations to provide macro stability, governance, infrastructure and social services that the mining industry needs to prosper.

In return, the government and the public at large need assurances that the mining industry is in fact contributing sufficient tax revenues to support the communities within which they operate and at levels consistent with profits they receive from extracting the country's natural resources. Unless such a regime is agreed upon, the mining industry will continue to dispute any increases in taxes and thus the government's revenues will be constrained. And moreover, the regime will remain unstable, thereby undermining investor confidence.

A lot of work is needed before we can start to benefit fully from the exploitation of our mineral resources. Having minerals in our country, in itself, guarantees us nothing. It offers us instead the opportunity to succeed as well as the risk of failure. It is both an opportunity and a challenge. It is an opportunity in the sense that if we manage our affairs well, we can get good revenues from it to develop other sectors of our economy and thus improve the living standards of our people considerably.

It is a challenge because having a potential and beneficially exploiting that potential are two different things. How much we will benefit from the exploitation of our mineral resources will depend on the correctness of the decisions we take and on the deals we strike with the mining corporations. And this rests upon our shoulders and on no one else's.

But there is no use continuing to mine when we are not getting anything out of it. This is a resource that is depleting as we mine. If it's not profitable to mine now, let's stop it and leave the minerals for the future generations to exploit in a probably more profitable manner. The current generation has a duty to account for what it is doing to the country's minerals.

If at the end of the day we exhaust our mineral potential without anything to show to the future generations, there will be trouble. And in this regard, chief Mpande's observations are correct and deserve the most favourable consideration.

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