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Friday, 21 August 2009

Mined out in Zambia

An important new article on mining in Zambia that brings together many of the uncomfortable truths we have discussed in the past. Excerpt :

Has the collapse in the price of copper given businesses another opportunity to blackmail Zambia's government?

Last spring the Zambian government finally decided to review its mining contracts. It raised corporate tax from 25% to 30%, and tax on profits went up from a miserable 0.6% to 3%. The World Bank - forced to recognise how modest the Zambian treasury's share had been up to then - supported the measure. Zambia was getting nothing out of the exploitation of its copper reserves, while the multinationals were making a handsome profit. The mining companies had even set up sophisticated systems to avoid paying taxes by channelling their profits through offshore companies in islands like Mauritius. In 2006 Zambia earned $133m from copper exports estimated to be worth $3bn.

Mining companies made $3bn from copper extraction last year. But of the $421m that should have made its way into Zambia's state coffers, only $200m was actually collected. Even though Zambia has some of the lowest taxes in southern Africa, the multinationals contested them, threatening to take their disagreement to a commercial court - in their home countries. That was before the risk of redundancies, on the back of falling prices, offered them a new way to put pressure on the Zambian government.

It seems they have achieved their objective. After winning a narrow victory at the end of October 2008, following the death of his predecessor Levy Mwanawasa, President Rupiah Banda announced that his government was having discussions with the mining companies - on cutting taxes: "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".

4 comments:

  1. Hmm, "a few million dollars..." eh? Let me see, an estimated 50,000 mining jobs in the country, versus US$221 million... that would be US$4420 per worker for the year, or US$368.33 per worker per month. How high would their wages have to be in order to generate that much in PAYE and VAT revenue for the government every month? It would be interesting to see the math behind the government policy unveiled so that the public can understand the operating logic too.

    ReplyDelete
  2. Cho,

    The mining companies had even set up sophisticated systems to avoid paying taxes by channelling their profits through offshore companies in islands like Mauritius.

    The US government has been cheated out of hundreds of billions if not trillions because for instance over 15,000 corporations set up a paper headquarters in the same building in the Bahamas.

    Now if the US government with all it's resources cannot collect taxes on profits, why would the Zambian government even stand a chance?

    We have to let go of the idea of taxing the profits of foreign corporations, and massively tax their revenues/turnover instead.

    Is say 20% is good start.

    Mining companies made $3bn from copper extraction last year. But of the $421m that should have made its way into Zambia's state coffers, only $200m was actually collected.

    The Zambian government should be collecting at least 20% or $600 million.

    "We must ensure that we do not kill the goose that lays the golden egg.

    What golden egg? Whose golden egg? Of course, in the neoliberal mindset, 'it doesn't matter' who owns the golden egg, as long as it is on record of having been produced. :-/

    Daylight robbery.

    There is little point in taking in a few million dollars in tax if thousands of jobs are lost as a result.

    The next time a politician says the $3 billion industry is there to produce 58,000 jobs, he should be impeached. Daylight robbery.

    Yakima,

    Hmm, "a few million dollars..." eh? Let me see, an estimated 50,000 mining jobs in the country, versus US$221 million... that would be US$4420 per worker for the year, or US$368.33 per worker per month. How high would their wages have to be in order to generate that much in PAYE and VAT revenue for the government every month? It would be interesting to see the math behind the government policy unveiled so that the public can understand the operating logic too.

    Far more, far higher paying jobs, can be created in agriculture and manufacturing.

    The idea that the mining industry is there to 'create jobs' is idiotic, and we should remind politicians of that at every opportunity.

    ReplyDelete
  3. Cho,

    The mining companies had even set up sophisticated systems to avoid paying taxes by channelling their profits through offshore companies in islands like Mauritius. In 2006 Zambia earned $133m from copper exports estimated to be worth $3bn.

    That alone is reason to scrap all the development agreements and mine contracts - except those who have paid the windfall tax (let's reward good behaviour for a change).

    Last time I looked, tax evasion is a crime. Tax evasion put Al Capone behind bars when they could not get him on anything else. A crime these corporations can never be convicted of, considering the difference in money available to their and the government's legal teams (money made from Zambian mines).

    So I say they are corrupt, let's scrap all these deals and just tax them at 20% of turnover - and I don't care if they come crying about this being 'unfair' - screw them, they have no problem screwing everyone else.

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  4. Yakima, Cho,

    To be precise, one building in the Cayman Islands (home to RP Capital, Dany Gertler's company), houses, quoting Rachel Maddow, 18,857 shell companies, so they can avoid paying taxes at home.

    Please check out this interview by Rachel Maddow, with Barack Obama's adviser Austan Goolsbee:

    Rachel Maddow Tax shelter crackdown

    http://www.youtube.com/watch?v=zH_yLgP3zbo

    ReplyDelete

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