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Tuesday, 20 January 2009

Towards lower mining taxes...

Quite surprising that this story never got much traction in the Zambia media. It appears the government is bent on giving in to the mining companies, despite the IMF position. Here is President Banda in his own words :

"The government is currently engaged with the industry to make sure that a beneficial financial environment exists for both the government and investors.. My government will do all it can to protect jobs and to safeguard the industry for the future. We must ensure that we do not kill the goose that lays the golden egg. There is little point in taking in a few million dollars in tax if thousands of jobs are lost as a result."

The argument has some merit (not necessarily sound), but it raises more questions than answers. Surely when GRZ developed the fiscal regime they considered that prices go up and down? Wasn't this framework developed by "foreign experts" hired by GRZ? Perhaps now is the time for the government to level with the Zambian people and reveal just how they arrived at the new tax thresholds? When is this government going to release the report from "foreign mining experts" they hired to advise us on the fiscal regime, at great cost to the tax payer ? Is the Government now receiving new advice from these "foreign experts" to reduce the taxes? How do we know the new proposed changes are robust, and not simply concocted in the corridors of power, where the mining companies maintain significant lobbying? At the very least we need answers to these questions before we can even begin to address the substance of what government is proposing.

10 comments:

  1. Cho,

    Surely when GRZ developed the fiscal regime they considered that prices go up and down? Wasn't this framework developed by "foreign experts" hired by GRZ?

    Doesn't it look like a long time ago, that your friend said these development agreements could not be renegotiated, because they were drawn up by 'the best lawyers in the world' (paraphrasing), and therefore they were fool proof?

    Perhaps now is the time for the government to level with the Zambian people and reveal just how they arrived at the new tax thresholds?

    Or even how they arrived at the develoment agreements, or why they were never presented before parliament? Or why they were secret in the first place?

    Secrecy seems to be a prerequisite for fraud and corruption.

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  2. The development agreements were drawn up without considering the possibility of big price fluctuations. Later, in response to those changes, Parliament made the identical mistake when it overrode the agreements. Sensible agreements provide for the unexpected.

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  3. Correction. I should have said 'arrangements' rather than 'agreements' because of course the change was not made by agreement.

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  4. I don't see how anyone could blame parliament. Especially as they were not allowed to read the agreements before they were signed (or even afterwards).

    And according to Edith Nawakwi, it was the IMF which assured her that copper prices would not rise for decades.

    I quote: FORMER finance minister Edith Nawakwi has revealed that the IMF and the World Bank pressured the Zambian government to privatise the mines on the pretext that copper prices would not increase in 20 years.

    Now how the IMF/WB could make such a prediction, I don't know.

    I say the government should sue them for loss of revenues.

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  5. Undermining Development - Copper mining in Zambia
    SCIAF

    October 2007

    According to the then finance minister Edith Nawakwi, the government was put under enormous pressure:

    ‘We were told by advisers, who included the International Monetary Fund and the World Bank, that not in my lifetime would the price of copper change. They put production models on the table and told us that there [was] no copper in Nchanga mine, Mufulira was supposed to have five years’ life left and all the production models that could be employed were showing that, for the next 20 years, Zambian copper would not make a profit. [Conversely, if we privatised] we would be able to access debt relief, and this was a huge carrot in front of us – like waving medicine in front of a dying woman. We had no option [but to go ahead].’31

    IMF, World Bank pressured govt to privatise mines - Nawakwi
    By Chiwoyu Sinyangwe and Chibaula Silwamba
    Friday November 02, 2007

    “Privatisation of ZCCM (Zambia Consolidated Copper Mines) was a condition repeatedly attached to several loans from both these institutions (IMF and World Bank) and was a pre-condition for Zambia to qualify for debt relief through the Highly Indebted Poor Countries (HIPC) initiative. In 1999, with the Zambian government still reluctant to privatise ZCCM, major donors withheld some US $530 million in aid until the government conceded,” the report revealed.

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  6. Mr K,
    "I say the government should sue them for loss of revenues."

    That would be very ungrateful of the government considering the decades of assistance that the IMF has provided Zambia. And what about the $1 billion that the government owed the IMF at the end of 2002? The IMF was kind enough to write much of it off instead of suing the government. If one expects aid from others, then one should not go around suing them.

    http://www.cgdev.org/doc/IMF/Zambia.pdf

    http://www.imf.org/external/NP/SEC/PR/2000/PR0067.htm

    http://www.imf.org/external/np/sec/pr/2005/pr05306.htm

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  7. Do the govt even know how much these mining companies are making for them to talk about reducing taxes? If I recall correctly ZCCM has never been payed dividends because the mines claim that they have never made any profits. FQM and MCM are very voiceferous on this issue I think they should be told in no uncertain terms that corporate tax will only be reduced from 30% to 25% if they list on LUSE.

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  8. MR K,

    please this thing of blaming IMF and WORLD BANK is a lame excuse which i refuse to accept especially that am lesser educated than these guys but can come up with a better explanation for mmy mistakes.

    whether they where coerced or not,my question is does she have minutes or any evidence to prove her allegations? and who would have known what the price will be?. our highly educated chaps can't even figure where the wave of crisis is coming from.it's a clueless world outthere.

    kafue 001

    my friend what we we owed the IMF was there decision what to do with,but not our agreement or batter exchange.we appreciate that they gave us breathing space and we are thankful for that.let no one use this gesture as an excuse for the mess.

    on the other hand we provide a vital input into the global economy.producing our raw materials at competetitive rates for the global economy to be functioning,not forgeting the imabalance which has occured. and the whole thing has spurn out of control and the effects are everywhere.

    luboss boy

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  9. here is the reality copper prices will rise but the beneffits are going to be have to had by the consumers.they will not allow a situation where we beneffit more and cause an imbalance,to our own disadvantage.

    the clean up is starting and the effects will be hard to swallow and good fiscal plicies will stand the test of time.

    we need to look at gettin good salaries for our people which in turn will get acitivty high in those areas and the surrounding ones.
    we look more at taxes which mea little to me or the common man,because we get little or no bennefits.

    luboss boy

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  10. LUBOSS BOY,

    please this thing of blaming IMF and WORLD BANK is a lame excuse which i refuse to accept especially that am lesser educated than these guys but can come up with a better explanation for mmy mistakes.

    I agree to the extent that the government should have done whatever it took, however, considering that this was the Chiluba government, Nawakwi's options were going to be limited and she could have easily been outranked by the President himself.

    However, no one can casually dismiss the IMF's withholding of 'donor aid' from the government's budget.

    This is what happened in Zimbabwe. This is the threat issued to Kaunda in 1991, which is why the country returned to multiparty democracy and Chiluba's reign - to which the IMF never objected.

    Isn't it odd, that they will tell governments to reduce spending on education and healthcare as a precondition, but never demand efficient government (like a reduction in the number of ministries down from 29 or so)? Or demand financial transparancy or accountability on behalf of the mining companies.

    Doesn't that strike anyone as just a little bit suspicious?

    ReplyDelete

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