By Daimone Siulapwa
According to the Minister of Finance and National Planning Situmbeko Musokotwane, copper production is expected to exceed 720, 000 metric tonnes, a level of production that was last seen in 1973. This places the country within reach of the medium-term target of one million metric tonnes per annum. And as we all know, the prices of copper have re-bounded on the London Metal Exchange (LME). But most shockingly, the government refuses to re-introduce the mineral windfall tax. In the words of President Rupiah Banda, government will not re-introduce the windfall tax for mining companies because it has the potential to stifle the growth of the mining sector.
“The abolition of the windfall tax will remain intact and as government, we shall not listen to those calling for the bringing back of this tax, let them just watch and see what government is doing to attract investors to the mining sector,” he was quoted recently as having said in the media.
Listening to this kind of talk, one wonders whether we all live in the same country. What investors is the President talking about? What is the essence of attracting many investors to exploit our natural resources if our people can not get the benefits? Or maybe the benefits are the shootings, low wages, poor safety and the like?
It is common knowledge that when the mines were under the control of the government through the Zambia Consolidated Copper Mines (ZCCM), Zambians, not just miners, were able to access the full benefits from the revenues. For a fact, Zambia is rich in mineral resources, which the multi-national companies have been exploiting. For the country though, it only enjoys a tiny fraction of the benefits.
A report by the Tax Justice Network for Africa (TJN-A), Action Aid, Southern Africa Resource Watch, Third World Network Africa and Christian Aid titled “Breaking the Curse: How Transparent Taxation and Fair Taxes can Turn Africa’s Mineral Wealth into Development” released in 2007, clearly shows this. The report says legislation that has set low royalty rates, combined with development agreements grants companies further tax concessions and holidays of up to 25 years, deprives countries of the much-needed revenues.
On top of this, Africa loses vast sums each year to corruption and illegal tax evasion by multinational corporations (MNCs). The document draws on evidence from seven mineral-rich countries including Ghana, Tanzania, Malawi, Zambia, South Africa, the Democratic Republic of Congo and Sierra Leone. It reveals questionable accounting practices by multinational companies that conceal the true value of their operations while a mixture of secrecy and flawed laws passed by parliaments across the continent further deprive African people of
revenue.
When presenting the 2011 national budget to Parliament last month, the minister of finance and national planning said he expected revenue from the mines to increase because of an increase in production. However, the minister in-charge of national planning could not tell how much he was expecting. How then can he plan? But for all we know, the mining sector’s contribution towards the treasury in Zambia is still very low. If anything, there is no voluntary compliance of tax payments by the mines. This is so despite the fact that taxes are not economical, political or moral issues but a constitutional matter, and a foundation of any state. Our objective therefore as a country is to maximize our revenue base,
and the mines present an opportunity to do so. After all, they are making huge profits, thanks to very high copper production levels and high prices on the London Metal Exchange.
According to estimates, Zambia is able to collect as much as US$400 million annually if it was to re-introduce the windfall mineral royalty tax. With this kind of money, why should we continue to borrow or ask donors for money to enable us finance our various projects including the building and maintenance of roads, schools, hospitals as well as the improvement of our water and sanitation situation? Indeed why should we struggle to provide basic social services to our people when we have that kind of money which we have voluntarily refused to collect? Is this not a way of embracing poverty? Certainly, our leaders can do better on the issue of windfall taxes.
Nawakwi is askin abot the root cause of corruption,it starts fro state house! Kick backs fro mining investors to get tax holidays en govt nt t levy windfall tax
#1, you hit the nail on the head.Refusal to implement the windfall tax has some evil backing. may be Someone has been given free shares in one of the big mines on condition that he does not implement Tax.Otherwise how do you explain refusal by our leaders to tax mines.Billions of $ is being externalised daily by these thieves leaving Zambians poorer than ever.
If you go to Chingola, the once cleanest town in Zambia, you will cry when you see state of roads. For those who have stayed in Chingola, that road from town to North Hospital is full of drum holes, all roads in kabundi North and south,and buyantanshi are now gravel roads full of drum hole.
If you want to have three beautiful Zambian women as wives, go to Chingola or Mufurila, you will get them.People are suffering!!
I agree with the article.
Hello, I am busy with my exams but I could not resist making a comment on this one.
Nice article including the quoted academic reports written by those NGOs in the very countries where the FDIs come from. In Zambia seemingly valid arguments have been given by proponents of the windfall tax, and government too has given equally convincing reasons for its stance. We should avoid being emotional or political on this issue. Even our very own Mr Sata may not be too sure where he stands on this one. In the run up to the 2006 elections Mr Sata is on record as promising the mines that he would abolish the tax when he assumed power, so from this viewpoint there is no difference of opinion between the PF and MMD.
Continued from 4:
The only difference is that the former is speaking from a point of expediency and the latter from the practical point of view having regard to the implications of the tax. Remember that the MMD has tried it before and it has seen the downside which Mr Sata saw too, if his quicksand statements can be relied on for this debate. It stands to question whether Sata would actually implement such a tax given his stance in 2006.
continued from 5:
There is no difference of opinion among us ordinary Zambians (whether affiliated to MMD or PF) that windfall tax would be good for the country if it can bring in $400M annually, but where we differ is our interpretation or perception of the practicalities of it. It may be a pie in the sky as many aspirations turn out to be in a given enevironment. To give a simple and logical but impractical example, it would be nice if government banned alcohol drinking in Zambia, the country could save billions of Kwacha annually, the quality of life would improve, there would be less carnage on our roads etc etc. But is this practical, and what is the downside?
This article has got nothing to do with being PF or MMD. I comment as a ZAMBIAN period! I dont care what Sata said or Rupiah said, what i care about is what is good for the country. #6 H.H. Sata, not everyone in zambia belongs to PF or MMD some of us are independent and not affiliated with any party. Having said that, i really think its stupid for any politician to think abolishing this tax is a good idea when (if true) it can generate almost 1/2 billion dollars for the country, imagine where that can take Zambia. But then again knowing our politicians, be it PF, MMD, or DOGGS etc whatever you want to call yourself, they think of their persona,l then party, then general publics benefit each time they make a decision. Am sure right now MMD is thinking of where they will get their
# 6 you live in what we call wonderland, it seems you dont know what you want. The point here is as much as investors cum and reap profits, it must not be at the expense of the owners of the land. Cardinal is there must be benefit to community congruent to whatever the investor makes, which is far from realisation in zed. You example which am glad you have said is impratical is not ideal in this case. Never compare alcohol to minerals, they are just incopartible in any sense of logic.
#7 contd. compaign money if they create “enemies” with the mines. And am sure politicians are the same be it HH, Sata, Cosmo Mumba ( if he still exists), they would do the same for as long as they get kick backs from their decisions. Rupiah says that this decision would bring more investors, how ridiculous, i would rather have one investor in Zambia who pays taxes than have thousands who don’t! I have a piece of advise for Rupiah, if you want some more easy to attract golden investors,how about you tell them that they will never pay a cent in taxes and trust me you will see how Zambia will be flooded with them, but the question is; Is that the right thing to do? Zambians lets not sell out country at a give away price, lets realise what our labour and natural resources are worth!
I for one thinks the abolishing of windfall tax is in the best interest of the country as Zambia will see long term investors unlike the ones that come for a year or two. Mind you fellow Zambians Tax is still being paid and it is better when there are a lot of companies that are paying rather than have only two paying the so called windfall tax. Maybe People k like HH who have a lot money should bundle up with others and purchase a mine so that they can pay windfall tax and lets see if they will survive , especially with the kind of attitude the Zambian workers have.
Zambian copper vs nigerian oil = resource curse.Both are the largest producers in africa yet we find Chile and UAE have done more getting the same copper and same oil prices.It is simplistic to just base the falure of zed on just windfall tax.
Africans are a special breed I tell you.God has given us something we can use to make ourselves better but we have failed to use it.If you have something that is as valuable as copper is at this time, why should you be afraid to use it (windfall tax) to better yourself? Did they say investors will leave if they introduce this tax? Just try it and see if they will dare leave. They need this resource and they are too greedy to miss out on these great profits being made in the copper trading business.Investors should be begging Zambians at this time not the other way round.Kwena twalishishita.Can we really blame God for the way we live? Chile was built on great copper prices.Opportunity has knocked but we are too lazy to open the door. Ine ichifukushi.
HH SATA you are writing exams? which level? As an academic and lecturer i will advise you to be analysing issues and not just bringing cheap pilitics in them. Whether its Sata, RB or HH who goes into state house, Zambia shall be Zambia and the leaders will have to be advised properly. As a Zambian the first question that should come to mind is what is wrong with windfall tax? which investors have gone back because of windfall tax? If any what are the other factors that may have led to their going? In developed countries, research is valued and as people who have the opportunity to go to school we need to advise the nation properly. i agree with sentiments of some Zambian friends who tell me that THE LEARNED HAVE DONE MORE HARM THAT GOOD TO ZAMBIA. Cheap politics will not take us anywhere
Indeed I would love to learn how Chile does it. I think one guiding principle is the fact that indigenous ownership is key. For as long as we rely on copper and so-called investors to mine it we will forever be at the mercy of the economic elements governing investment climates. Am not sure the Arab states are as far removed from their oil as the Nigerians are. There is ownership and development where the oil is. We could look more at the social and economic development issues around the mining areas for a start while we chase the wind over the fall.
I agree with most of the article, and where I don’t agree is where I would go even further.
For instance, if copper prices are on average $8,000 this year, and we have a production of 720, 000 tonnes, and the mines have a cost breakeven point of $3,000 per tonne, that means they make a profit of $5,000 per tonne. For 720, 000 tonnes, that is $3.6 billion.
Zambia has a corporate profit tax of 35% – that is $1.26 billion of state revenues. There is a mineral royalty tax of 3% – that is $172.8 million. So in total, the government should be collecting $1.43 billion – and that is without a windfall tax. Also, the government owns 1/5th of the mining company shares through ZCCM-IH.
As it is customary to pay out 50% of profits as dividends, that should give them another 10% of total profits – $360 million, for a total of $1.79 billion.
$1.79 billion is almost exactly 50% of profits. Which is fair. Clearly, this is not what is being collected.
Also – I hate the phrase ‘resource curse’ – we are talking about theft. When you have a mercedes benz and it gets stolen, you don’t talk of the ‘mercedes benz curse’ – you call it what it is, car theft. When someone says ‘resource curse’, they are taking the spotlight away from the thief.
Reader@ 12. I totally agree with you. The country needs to benefit from the natural resources. Zambians don’t seem to value ownership of everything ranging from mineral resources to land. we can just wake up and start giving pieces of land ( thousands of hectares) to foreigners- King Mswati, Chinese and others. we need to seriously learn from developed countries. i was listening to imigration debates in the UK parliament where the minimum wage for those coming as expatriates will be £40000 i.e K300million annually. this protects the jobs for the locals.Lets for once forget about vama politics and work at leaving a better Zambia for our children. We can still make it, lets stand up together
We are already owed about 50% of profits, so when we talk of the Windfall Tax, we are not really talking about higher taxes on paper. We are talking about *collectability*.
I would gladly give up all the existing taxes on the mines, for a tax that actually collected 50% of all mining profits.
#10.BUSAKILE MAN. I agree with you, I also think that abolishing of windfall tax is in the best interest of the country as Zambia will see long term investors. Remember people, low interest rate more Investors and high interest rate few Investors.
Gentlemen, dont ever think that you will have long term investors, investors are not permanently bound like in holy matrimony with countries. They are business men who dont care about anything but only profits. If they find the cost of doing business to be cheaper elsewhere they will leave at anytime. so you boast about the many investors yet we get very little. Its horrible, i think Zambia is the only country where you can easily get away with things. Do you even know that most of the foreign investors pay less, they have tax liberties. local investors are finding very hard to do business.
corporate social responsibility is almost a thing of the past. Those who have had an opportunity to live in the diaspora or visit will agree with me that out there you feel it that you are a foreigner
#10 and # 19, First you have to understand what this tax is. This is a tax levied by governments against certain industries when economic conditions allow those industries to experience above-average profits. Windfall taxes are primarily levied on the companies in the targeted industry, in this case the mining industry, that have benefited the most from the economic windfall due to demand and pricing on the market. As with all tax initiatives instituted by governments, you will find a divide between those who are for and those who are against the tax. But it should be told here that the benefits of a windfall tax include proceeds being directly used by governments to bolster funding for social programs which the writer has ably mentioned.
Cont.
However, those against windfall taxes claim that they reduce companies’ initiatives to seek out profits. They also believe that profits should be reinvested to promote innovation that will in turn benefit society as a whole. Will this happen with current crop of investors in Zambia? That you should ask yourselves.
Now let us discuss this with tangible and concrete examples. Republicans in Congress 2008 united to defeat a proposed windfall tax on oil companies, deriding it as a bad idea that would discourage investment in U.S. oil exploration. Things worked out far differently in the GOP stronghold of Alaska, a state whose economic fate is closely tied to the oil industry. Over the opposition of oil companies, Republican Gov. Sarah Palin and Alaska’s Legislature
Cont.
that year approved a major increase in taxes on the oil industry — a step that has generated stunning new wealth for the state as oil prices soared. What else has soared that Zambia produces? Copper. Alaska collected an estimated $6 billion from the new tax during that fiscal year, according to the Alaska Oil and Gas Association. That helped push the state’s total oil revenue — from new and existing taxes, as well as royalties — to more than $10 billion, double the amount received the previous year. While many other states are confronting big budget deficits because of the troubled economy, just like it is in Africa, Alaska officials are in the enviable position of exploring new ways to spend the state’s multibillion-dollar budget surplus.
Well writte. A few points to note:
1. We are getting nothing from mones but even if we were taxing them the moneys would STILL be stolen. In this regard you can say the politicans loose out cause im sure the bribes they are getting now are much less than what they could have stolen. This call into question the intelligence of our leaders, too dull even to steal the maximum moneys for themselves, dont talk bout ruling the country.
2. Copper is NOTHING compared to OTHER minerals we have, just think of the FUTURE LOSES of resourses from this county! Due to corruption of course.
3. Ultimately leaders come from society, they are ourselves in a way, they are not dropped from outerspace, so we are in effect DOING THIS to OURSELVES!
4. How many people in zambia READ the above article?
Cont.
Some of that new cash will end up in the wallets of Alaska’s residents. Now replace Alaska with Zambia. That is how we are missing this God given blessing for economical survival and most definitely growth. Like oil, where do you think these investors will run to for this blessing we have? After all if they did run, probably our ZCCM can reclaim the lost glory by doing better than they did. We were told copper is almost finished, but the opposite seem to be the truth considering how others want to get their hands into our copper mines.
A windfall tax is not a permanent tax. The economy and the profits being made in certain commodities is the determinant for this tax. Remember, it is not the government that is losing out here. It is the people of Zambia. The government like a corporation have no feeling at all. The owners of these entities have feelings and if these entities lose out, like the Zambian government is doing, it is the people who are suffering. Go to the hospitals, you wont find the government sick or morning at the morgues, it is the people. Why do you think CEO’s in America rake in millions plus bonus? They know that the corporations will not protest.
Windfall taxes are retrogressive in the sense that according to third party information, they tax gross profit instead of net profit. There is not a single nation today that has windfall taxes on mining companies because this is a perfectly competitive market. Having said that, companies use capital budgeting (to my knowledge) when making investment decisions and believe it or not, taxation plays a big part in capital budgeting.
Now many will say “companies will not leave” even though windfall taxes are reinstated. And I agree, basic economic theory suggests that as long as you can cover your fixed costs, you’ll still produce. That said, the industry will not grow. Expansion projects will be scrapped and no new investors will be willing to come in.
cont…
This is the reason Mongolia abolished windfall taxes. It is because their mining industry stagnated. They had to scrap it to get additional investment. Zambia risks suffering from this if it reintroduces windfall taxes regardless of the fact that it is a progressive tax.
As long as this country is under the MMD government we should forget about windfall tax.
The level of spirit of public service in this government is very low. A number of these mines have offered jobs to friends of the president eg Jacob Mwanza, who is a board member at KCM.
NO INTRODUCTION OF WINDFALL TAX,HE WHO SHOUTS LOUDEST IS NOT ALWAYS THE WINNER.READ HON MUTATI’S ARGUMENT IN TODAY’S POST IT WILL HELP YOU MISFITS UNDERSTAND THE IMPLICATIONS OF WINDFALL TAX
#19 before you agree with #10 think; copper prices will not be forever this high hence the term “windfall” something unexpected.When the price of copper is this high and huge profits are being made, Zambians should benefit.Think man.
#27 if indeed the windfall tax is tax on the gross then it should be changed to be tax on the unexpected huge net profits period.
28 Mr. Capitalist,
” Windfall taxes are retrogressive in the sense that according to third party information, they tax gross profit instead of net profit. ”
What is at issue is collectability. The mining companies have already shown that they cannot be trusted with declaring their own profits, they are engaged in massive tax evasion. This is completely unacceptable.
Also, just so no one is confused, the windfall tax is a progressive tax, not a regressive tax. It increasingly taxes only higher brackets of copper prices.
@ #30 ninebo
# 30 It doesnt matter whether Hon. Mutati said it. What Hon Mutati is saying is according to the Stand of the MMD. The reality is the Zambian people are not benefiting See #31’s argument. The windfall taxes only applies when the profits are huge and unexpected. Hon.Muatati says that the profits for open pit and underground are different. What about right now why cant they complain that the taxes they are paying 3% are not different from each other though its little that they pay and the same applies to the royalites. 0.3% The same when the windfall applies they should not complain, for they are not complaining now. for the percentage of the profit they get now is the propotional to what they will get when the winfall is applied. Its simple.Why dont mines in Botwana complain over windfall.
Great article; let me google the TJN-A article and read it thoroughly before commenting. In my opinion, the people who screwed us initially were the technocrats who drafted the initial develpment agreements. Why didn’t they factor in windfall taxes? Working backwards to throw in these clauses is retrogressive and shows how incompetent and unpredictable we are (not a good environment for attractive FDI).
VOTE THEM OUT.
This refusal to re-introduce the windfall tax should be made a campaign issue next year. Its clear that the mining firms are making quite a bundle from our natural resources(non renewable by the way). if they don’t like it let them leave others will come case in point Anglo American. We are already bending over backwards by allowing these investors to externalise all their sales revenues. I would not mind if there was no wind fall tax but there was a requirement in our laws that obligated these investors to externalise only 50% of their sales revenues while the rest came back to Zambia for reinvestment elsewhere. Too bad we have wimpy opposition political parties that are allowing all manner of maltreatment to be shoved down our throats. Are we cused to forever have mediocre leadership?
some clarification needed, how can the removal of windfall tax promote long term investment only? Dont you think the fact that abnormal profits will be taxed will mean that it’ll take longer for companies to recover their investments than when they fully enjoy all these huge profits? Meaning companies paying higher taxes will stay in the country longer in order to make return on their investments ?
Would someone please be kind enough to tell me what is more despicable corruption than having your Zambian politicians campaigning on behalf of donors against the introduction of Windfall Tax so that your country does not fully benefit from its mineral resources. They instead shift energies on exaggerated corruption of its citizenry created as a mental construct to target hard working people so as to please blinded donors. Is it just me or there is everything wrong with having gaping chasms in the earth(potholes)on roads in a mining town. Some folks will seriously be haunted by the decisions they have made and continue to make, if they have a conscious that is. This is Economic management the zambian way indeed!
All those arguing for windfall tax especially tuma people like Bob Sichinga, et al where is the logic of taxing revenue. the standard practice the world over is to allow expenditure to be offset against revenue then the remainder you apply corporation tax at various bands. Assuming i make revenue of $10,000 before allowing for expenses you tax me say 25% this leaves me with $7,500. then unions want ‘good’ salaries, this plus admin costs turns out to be $3500 this gives a remainder of $4000 before considering capital allowances and the balance is the taxed at a higher tax rate of 35% corporate tax. how much is the invester going to remain with as after tax profit Mind you Zambians you have failed to invest in the mines because it takes time to recoup profit. all you do is trade at comesa
This is a good article and I like the contributions from all the bloggers. I agree with the governement stance of abolishing windfall tax as a means of attracting and expanding the investment base but the govt should looking into introducing measures to get a bigger chunk of the profits. Investments in the minning industry are long term so we do not expect investors to pack their bags and leave whenever conditions are not favourable. It would be a good idea to raise the taxes once we have attained the targeted investment levels. I hope this is what the govt is aiming at. If this can not be achieved due to legal impedements then it’s better to introduce windfall taxes and attract fewer geniune investors
40 Alinaswe, ” where is the logic of taxing revenue. ”
1) Costs are relatively fixed, and are around $3000/tonne. 2) The price of copper is openly published, which is how we all know that it is over $8200/tonne, even though people were publishing articles with lines like “our poor copper is low priced”.
Therefore, it is easily observable how much profit is being made. If it is left to the mining companies themselves, they will NEVER report a profit, and will always underreport profits, just so they can evade taxes. That is what is happening now, and why we can’t let them set their own tax rates.
41 Zed Patriot,
The problem is that the government is protecting the mines from sharing profits or paying taxes. The DAs have already been replaced by the new mining act. But even upholding the DAs, they don’t cover PAYE. In other words, the government can still raise PAYE, as well as raise the mininum wage, so for instance if they set the minimum wage in the mining sector at $15/hour, and then collected $10/hour in PAYE, they would still collect the same amount of money.
This is OUR time. We have not seen copper prices like this for almost 30-40 years, and are not likely to see them again. We have access to money to diversify our economy and develop agriculture, manufacturing and infrastructure. It cannot be deferred to the future.
I cannot emphasize enough that we need action and collect billions of dollars in taxes now – future investment in mining will not be this profitable. We are coming off a massive inflation of paper assest, and their deflation leads to the pushing up of commodities prices. This will not last. At some time, the US will reduce the margin rates of it’s futures markets contracts, which will half commodities prices. Demand from China at some time will be satisfied.
The development of Zambia is now or never. It cannot be deferred, and cannot be obstructed by the petty personal financial interests of individual politicians or political parties.
just vote the characters out,twacula pafula.