By Gift Chanda, Chiwoyu Sinyangwe and Kabanda Chulu
Sat 21 Dec. 2013, 14:01 CAT
*** COMMENT - More lies from the mines. The mines would collapse because the Windfall Tax would make them 120% of profits? On the other hand, if FQM's cash costs are higher than $2,50 per lbs (below which the windfall tax is 0%), I would like to see them prove it, because the Cash Cost per lbs at KCM is $1,00 (which would leave the next $1,50 of profit completely untaxed). Cash Cost at Katanga Mining is $1,69 per pound. But FQM claims that their Cash Costs are over $2,50 per pound? Let them prove it. - MrK
And another thing - the last time the IMF 'advised' Edith Nawakwi that 'copper prices would not rise in her lifetime', they were dead wrong. When do they pay for being wrong? When will people stop listening to the IMF's 'advice'? - MrK ***
FINANCE minister Alexander Chikwanda says government programmes, including reintroduction of the mining windfall tax, cannot be dictated by the feelings coming from the streets.
When asked what the government's position was on renewed calls to re-introduce the windfall taxes, Chikwanda yesterday said people were right to complain that the country was not getting its fair share from the mining sector.
"However, the government has its own programme," Chikwanda told journalists.
"We can't just have our programmes dictated by the feeling on the street, enlightened or unenlightened."
He said the government had its own plans to revise the mining taxation, taking into account the interests of the country as well as ensuring that the mines operate viably.
"The government in this situation is like a dairy farmer; if you want milk from a cow, you don't do things which will kill the cow because you will have no milk. You would want to invest in your cow or cows..., up the nutritional requirements, so that you can get more milk and possibly over an extended lactation period," he said.
"So the government has to do a serious balancing act. We can't just wake up and slap, say, 20 per cent or 30 per cent royalty tax on a little mine which in no time will go under; and if you are a mine like KCM - you employ 20,000 people, you put people on the street."
He said the government had a responsibility to ensure that jobs in the mining sector are secured.
"The assurance, however, I can give the people of Zambia is that the government is alive to the issues relating to tax in the mining industry.
In 2008, under Levy Mwanawasa, the government introduced a windfall tax on base metals at a minimum rate of 25 per cent with a revenue projection of at least US$415 million per annum.
For copper, the windfall tax was pegged at 25 per cent at a price of US$2.50 per pound but below US$3.00 per pound, 50 per cent for the next 50 cents increase in price and 75 per cent above US$3.50 per pound.
But Rupiah Banda's government removed the windfall tax, claiming that it was 'hurting' the mining investments. And following the election of the PF into government, pressure from the civil society mounted for the re-introduction of the windfall tax. However, Chikwanda in 2011 said those calling for the re-introduction of the windfall tax were 'lunatics'.
And the International Monetary Fund (IMF) says there is need for better enforcement of existing taxing laws for the mining sector.
IMF resident representative for Zambia Tobias Rasmussen said there was also need to maintain policy consistence and stable investment environment in the mining sector.
"The tax regime for the mining sector is fairly standard for the industry," Rasmussen told journalists yesterday. "What is needed is better enforcement of the existing legislation. So, we would advise you go that route than changing legislation."
Rasmussen said the contribution of the mining sector to the overall local economy of Zambia was projected to rise as mining companies ramp up output and new mining projects come on stream.
"We are projecting that there will be an increase in mining revenues in the coming years," said Rasmussen.
"The two important reasons for this is that there will be increased production and some significant expansion underway which will increase production levels and that will also enhance the taxes to government. So, that is the way to approach the need for higher revenues is that area."
Meanwhile, mining industry experts have advised the government to devise an effective taxation policy that would ensure that a fair share of mineral wealth is distributed to local people.
And Chamber of Mines representative Kingsley Chinkuli says reintroduction of the windfall tax regime will be detrimental to the mining sector.
During a discussion on mining taxes hosted by the Economics Association of Zambia in Lusaka, economist Professor Oliver Saasa said the mines were a key component in the development of Zambia and people expected it to play a bigger role beyond the current scenario.
"But the mines are relatively lower players in the economy. While we may accuse the mines of failing to contribute sufficiently, we have also failed to establish effective structures, for instance, Ministry of Mines, Bank of Zambia, Central Statistics and ZRA have different figures and if our tax revenue collection is based on profits, then government should have accurate figures," said Prof Saasa.
"Our capacity is very weak and we have not done well to strengthen institutions that should monitor and get realistic revenue. Even with the windfall taxes, very few paid. Most of them resisted but since we lack capacity, even when we realise that we have been shortchanged, we still lack capacity to change things, so we need to put our house in order to get a fair share."
Financial expert Gilbert Chinyama said there was need to have research-based debates relating to economic governance of the country.
"Research organisations and other think-tanks should carry out studies and make their findings available for people to make informed comments on matters of the economy including the issues of windfall taxes," he said.
University of Zambia School of Mines lecturer Mathew Mpande said there were many forms of taxing the mines.
"There should be a balance between what the mines want and what the community wants but the current system which is being applied to the tax the mines is profit based and this is prone to abuse through tax avoidance, evasion and transfer pricing," said Dr Mpande.
"In India, they apply the expenditure based. I think it is very fair and Zambia should also tax the mines through this system. For example, when you look at the trucks that haul copper concentrates from Kansanshi to the smelters in Chingola, you realise that these are modern fleets of trucks, so tax the mines based on the expenditure they are making."
And Gen Chinkuli, who is also First Quantum Minerals country manager, said mines would collapse if the windfall tax was brought back.
"Mere attacks based on ignorance will not help the situation. The windfall tax is not the answer. If re-introduced, overall taxes for the mines will stand at 120 per cent, so meaningful consultation is needed to come up with a win-win situation," he said.
"FQM currently pays mineral royalty at six per cent on revenue, 30 per cent profit tax and 30 per cent variable tax also on profits. These are very high tax rates and if more taxes were to be added, then the mines will collapse."