Resident contributor Kaela B Mulenga has written a detailed response to our discussion on Eight reasons for rejecting higher mining taxes. The full piece is reproduced below for ease of access, as it was entered in two separate parts. This is also part of our on-going efforts to deepen the level of dialogue to allow both room for those who provide few lines of comments and those who follow the historic analytic traditions of carefully weighed and detailed responses :
After reading some of the comments and exchanges posted on the Zambian Economist’s discussion on ‘taxation policy’, I feel that I can make my six-pence contribution.
First, I am happy that we are having this conversation. Kudos to Chola Munkanga (Cho) for sparking this discussion. And secondly, I hope that somebody in government is monitoring this talk – because embedded in this debate is the concern some of us have about the exploitation of non-Zambians of our resources.
The main point to be made here is that – while we accept that foreign investors are entitled to walk away with a return on their investments – it is equally legitimate for the owners of the resources to get some benefit from their natural resources. In other words, there must be some
fair trade-offs between the two sides. The investor should not, for whatever reason, be allowed to get away with too large a share. There should be a way of sharing or apportioning these benefits equitably or fairly.
This should be the central theme to the whole concept of taxes, and hence our interest in wanting to scrutinize them.
The bottom guide line is quite simple. Depending on which way the pendulum swings (due to say – demand, commodity prices, world economy etc.): - in a situation where genuine losses are made, companies should be permitted to write them off or given time and chance to recover them. On the other hand, in a situation when companies make genuine (nothing hidden) exorbitant profits – they should pay a fair share on it to the owners of resources. Emphasis here is on the word g-e-n-u-i-n-e.
The difficulty we face is – how and who is going to ensure that this objective is reached in a process which takes place amicably? It is in that process when government policies, its actions, its contracts and international agreements etc., come in. Before I proceed, I am known to be pro-Western investments versus Chinese or those from socialist countries like Bulgaria.
Now let me raise some specific views and/or misgivings. First, Murray Sanderson's talks of “Rule of Law” (R of L) being violated in the event of international agreements being reviewed. In my own opinion, this R of L is just a new construct or conditionality invented by the West to exploit less developed countries (LDCs). Were it not so, then we should have been seeing the level of Corporate Social Responsibility (CSR) matched on a one-by-one with the Rule of Law. They want us to be committed to this R of L, when they aren’t committed to the CSR. Therefore at the very least, this rule of law is predatory. Where ethics and morals conduct count, the investors should in fact have more burdens.
Then comes the argument that – once agreements are reached into, you cannot amend them even if you are a government. This fails – on Cho’s point that you need to have “all party agreements”. There are many who believe that this was not the case with mining investors. Hence, that’s why we think that – “how agreements are reached at matter” is a strong argument. A responsible government cannot just stand by and let resources hemorrhages continue unabated.
It is easy to assume that the Zambian side was the weaker part, thus, not forceful, and compromising in fear of the talks breaking down. People forget that Pres Levy Mwanawasa was talking to new mining investors after Anglo-Americans had suddenly pulled off. That was a tough time. Therefore, being soft and very accommodating, explains why Zambians even failed (or forgot) to enclose an exit clause in the agreements. An exit clause could have avoided – “respect of the agreements” discussion....
Again Murray and others worry that unilateral changes would discourage the long term investments flow. That would not necessarily be the case, if a new discussion was re-opened up guided by frankness and new facts. A situation where investors are acting like Kings is not acceptable.
In any case, every where in the World, governments retain their right to changing their mind or amend statutes. This is analogous to printing money even if you have nothing to back it up with. Without this power, Idi Amin or our next door Robert Mugabe could have folded a long time ago. The point is that – a government does not need permission from anyone to adjust its policies. Why should they? I am sure people like Murray are happy when our Ministers become intimidated.
What we need is to enter into contracts with humble and honest investors – not business vampires or Cow Boy Capitalists. When copper prices skyrocketed, what is wrong in government seeking for ways to increase its revenue portfolio? After all, government needs more money to fix infrastructures such as roads on which companies rely to make more money.
Therefore if investors are looking for long term stability – here again I have to side with Cho’s view that – having secure agreements good for a long time – one needs to have “comprehensive engagement of ALL parties”. Artificially ‘good’ contracts, which are in essence unfair and cheatful or rely on backdoor strategies to take advantage of the weaker (or ignorant) party, are not useful.
Maintenance of the stability of taxes being discussed can only exist when both parties are transparent and honest to each other. For it is not simply a question of attracting investments which is at issue, but a search for trusted development co-partners. Those prepared to share fairly – the revenues or benefits accruing from those investments are welcome. Whenever we suspect that this doesn’t hold, that’s cause for worry.
And because companies have this inherent habit to cheat – that is why they pay big bucks to accountants, again I have to agree with Cho that – the choice we make between the profits variable taxes as opposed to windfall tax, should be made guided by this principle. We have to go with a regime which gives us a higher probability for not being cheated combined with a possibility to earn a larger revenue sum. Ordinarily this would not be a hard choice, given full disclosure and absence of cooking books. But because the world is the way it is, we’ve to do our best in facing the reality. Provided of course we rely on the best minds we can find. As Cho guessed, mining accountants are probably craftier than the government ones. So we’ve to think very carefully.
Someone also talked about relying on transparency and LuSe regulatory regime. No matter how comprehensive these regulations might be, by themselves, would not be sufficient to protect us from cheaters. Wall Street which has got a more developed and water tight system, still more has a problem. It is not easy to inspect and verify all companies’ actions and activities.
In short, I am of the view that – unless our government revisits this mining tax issue comprehensively, and seriously, Zambia’s interests will be short changed. For, the whole purpose of having governments is to look after the interests and concerns of its citizenry. In LDCs like Zambia, we cannot afford to be guided by the principle preached in the West – especially the conservative doctrine, that corporations can only function normally in an environment of reduced or no taxes at all.
We need to strike a balance, and that should be the heart of this discussion. Thanks!
Kaela B MulengaMay 31, 2010