Friday, March 28, 2014

Haabazoka urges Chikwanda not to dismiss windfall tax

By Kabanda Chulu
Sun 22 Dec. 2013, 14:01 CAT

DR Lubinda Haabazoka has urged finance minsiter Alexander chikwanda not to dismiss windfall tax. Disagreeing with Chikwanda's stance on windfall tax, Haabazoka said the government should not reject ideas on mining taxation because all citizens have a common goal to see national economic development.

Speaking to journalists on Friday, Chikwanda said the government's programmes, including the reintroduction of the mining windfall taxes, could not 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 said people were right to complain that the country was not getting its fair share from the mining sector, but that the government, however, had its own programme.

"We can't just have our programmes dictated by the feeling on the street, enlightened or unenlightened," he said.

Chikwanda 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...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.

But Dr Haabazoka, the Copperbelt University academician, said everyone was entitled to their own opinions.

"I disagree with the minister on windfall tax because there is nothing wrong for people to call for windfall tax and government should not reject ideas because all of us have one common goal to see national economic development, whether one is for windfall tax or not," he said.
"Windfall tax is key in maximising revenue collection from the mines since it will tax super profits and if the mines make losses, then there will be nothing to tax but as we explore this route, we should also bring sanity to the mining sector by addressing the way profits are calculated, exports are declared and how production is monitored.

This way, we shall get meaningful results. Also government should understand the cost structures of the mines as they come up with taxation policies because operations at KCM can be different from that obtaining at Muliashi in Luanshya."

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 on the International Monetary Fund (IMF) which raised concern over rising fiscal imbalances and lower reserve coverage, Dr Haabazoka, who is head of account and finance department in the School of Business at Copperbelt University, said the statement was timely and the government should move towards increasing reserves.

"The call by the IMF is valid, we need to build reserves by broadening the resource mobilisation, and actually, the culture of savings should not just be encouraged at homes but also at national level, we shouldn't just build two or three months import cover that is used on consumption," Dr Habazoka said.

"We shall have problems if not addressed because debt servicing is done in foreign currency, hence we need to create a stabilisation fund that can cushion unfavourable swings in copper prices or negative impacts in the global economy."

He also commended Chikwanda for proposing the wage freeze.

"Government is over-stretched and cannot afford to offer huge increments, especially that most public service workers got more than 100 per cent and these increments were not tallied to production but to removing imbalances and harmonisation of salaries; so the wage freeze will also help government to plan," said Dr Habazoka.

"And despite the proposed recruitment freeze on those directly on government pay roll, it doesn't mean government will not create employment but this will be done through the various infrastructure projects being undertaken countrywide."

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