zambia taxes are going up, up, up

Govt remains adamant on mine tax
By Fridah Zinyama
Tue 11 May 2010, 04:00 CAT [295 Reads, 0 Comment(s)] Text size Print


SECRETARY to the Treasury Likolo Ndalamei has said all the mining companies are aware that penalties and interests should be paid on all monies owed to the country.

And Ndalamei has insisted that the variable profit tax is still sufficient for Zambia to collect adequate income from the mining companies while prices are favourable on the international market.

This is despite a suggestion from the Parliamentary Committee on Estimates for the country to have a tax on revenue collection which cannot be easily manipulated, unlike the variable profit tax.

The committee insists that it is more realistic to implement revenue based tax as the country does not currently have the necessary skills to implement variable profit tax.

The Parliamentary Committee on Estimates has over the last two weeks invited stakeholders to give their views over the performance of the countrys mining taxation during the period 2007-2009 when the government introduced a new tax regime meant to help improve revenue collection from natural resources.

The new tax regime required the copper mining companies in Zambia to pay more of their windfall profits in tax revenue to the government.

This was meant to greatly increase the amount of money available for public spending on poverty reduction.

Had the tax regime been maintained, the government would have been able to improve education and health services, and make investments that could have created more jobs and livelihood for Zambians.

The tax regime would have brought into government coffers about K2 trillion US$ 400 million annually, therefore lessening the need for donor aid to carry out its social obligations.

But due to the effects of the global financial crisis, the government scrapped the windfall tax to give the mining companies room to recover, leaving the variable profit tax, corporate tax and mineral royalty to deal with any windfalls turns which might occur once copper prices increase on the international market.

During last weeks session of the Parliamentary Committee on Estimates, Kabwata member of parliament Given Lubinda sought to know what action the government would take against mining companies that were illegally holding on to Zambian funds.

In response, Ndalamei said penalties and interests should be paid on the monies owed to the government.

All the mining companies are aware of this and know that... Interest accumulates and should be paid, Ndalamei said.

Kawambwa member of parliament Elizabeth Chitika-Mulobeka then expressed relief following Ndalameis assurance that the government would not allow the mining companies to get away with the outstanding taxes.

Its a relief, government should be firm and should ensure that the mining companies pay the right tax, Chitika-Mulobeka said.

Ndalamei said the variable profit tax, corporate tax and mineral royalty were sufficient to collect revenue from the mining companies for the government.

Its not a good practice for government to tax the revenue as it does not consider the production costs, he said. Its the profits that a company is making that should be taxed.

Ndalamei said taxing the revenue would make it difficult for the mining companies to operate.

We should also realise that there are some high cost mines and some profitable mines like Kansanshi, Chibuluma and Lumwana copper mines, he said. We will be collecting taxes from these mines.

Ndalamei said next years budget would show that the government had collected substantial amounts from the mines.

By the end of the year, I will show that we have collected the money from the mines, he said.

On the 2008 tax regime, Ndalamei said it was not a properly crafted tax system.

I have done some research on windfall tax and found that there are no other countries in the world which implemented the taxes the way it was done in Zambia, Ndalamei said. What we currently have is what is currently prevailing in other countries.

At this point, he was reminded by the committee that he was the same person who had advised the government on the same windfall taxes.

Ndalamei was asked whether he had misinformed the government, to which he responded in the negative.

We admit that we advised government over the windfall taxes which were implemented in 2008......a re-look on a decision can be made once it has been made, he said, adding that if you think that it needs refinement it can be done so that it is brought in line.

Ndalamei said Zambia was not an island and it was competing for investment with other countries in the region.

The way we are going to implement the windfall tax is not going to be on revenue but profits. This is because tax on revenue does not take into account the costs of production which mining companies incur, he said.

Ndalamei added that in the current negotiations between the government and the mining companies, the issue of the nullification of the Development Agreements (DAs) had been considered.

When the DAs were signed, there was a provision for negotiations or arbitration, he said. But government told the mining companies that the two parties should meet and negotiate..., Im glad to say that negotiations are to be completed.

Lubinda then asked what action would be taken against the mining companies which were still holding on to Zambian funds illegally.

Books of accounts show that the mines still are holding on to Zambian funds illegally, he said. We have not heard government say that there is going to be a penalty for failure to pay.

Lubinda wanted to know what the penalty was for failing to pay taxes.

I would like to find out from you... Secretary to the Treasury, what is wrong with being taken to court by mining companies in keeping with international standards? he asked. We are only looking to benefit from our natural resources as is in keeping with international standards.

He wondered why those in the government were failing to see the urgency in Zambia benefitting from its own resources when things were favourable on the international market.

Why do you want us to be a Cinderella country which cannot make an independent decision? he asked. Why dont you want to allow Zambians to benefit from their resources?

Lubinda observed that some mining companies had refused to pay the windfall taxes that had been applicable during 2008 on grounds that the Zambian government had abrogated the DAs.

What does ZRA do when an ordinary person refuses to pay taxes? he asked. Why is that different with the mining companies, government is too lenient with them?

Lubinda asked why the government and the Secretary to the Treasury were not taking action against the mining companies which had refused to pay the taxes in accordance with the law.

Should the issue of the DAs continue to nag us even when they have been nullified? he asked. If Parliament nullifies an Act, why are you still bringing the issue of DAs?...Are you demeaning Parliament?

Lubinda acknowledged the fact that Zambia was competing for resources but also noted that the country had a comparative advantage which it was not taking advantage of.

Yes, we are competing for natural resources but its not every country that has copper in the world, he said. We are a major player in the copper industry in the world and if Zambia stopped production...prices would soar on the international market...that should count for something.

Lubinda wondered why Zambia had to always beg from the donor community when it had a competitive edge as a country.

And Hamududu said increasing mineral royalty would be an alternative to the windfall taxes in Zambia.

If we are part of the global world, then we should emulate what the rest of the world is doing, he said. Other countries in the world are benefitting from their resources.

Hamududu said the variable profit tax was not practical for Zambia hence the need to come up with an alternative urgently before copper prices fall on the international market.

He also wondered why the government had totally scrapped the windfall tax instead of re-modelling it as the country was currently getting a raw deal.

The current tax regime is not working for Zambia. Right now you have a budget deficit, but you are allowing revenue to go uncollected, Hamududu pointed out.

Mbabala member of parliament Emmanuel Haachipuka added that Zambia was politicking on windfall taxes when things were very clear that the owner of a resource should be able to benefit from it.

Investors have sold so many ideas to us such that government does not allow Parliament to have a proper say on such important issues, he said.

Haachipuka wondered where else Zambia was supposed to find resources to build its economy other than its God-given resources.

Zambians have gotten a raw deal because they do not have the resources to own mines, he said. We must therefore find a formula that will enable Zambia to benefit as a country from its resources.

Haachipuka said there had to be some money left for the country to develop.

You cannot run an entire economy on a few people in formal employments PAYE Pay As You Earn, said Haachipuka. This formula should be found that would enhance the countrys resources.

Zambia in the first quarter recorded a budget deficit of K653.9 billion, monies which have to be found in order to implement social programmes that the country desperately needs.