Find us on Google+

Thursday, 2 September 2010

Pf Policy on Mining Taxation?

The PF President Michael Sata wrote to the President Banda on August 12, 2010 with what appears to be a restatement of their 2008 position that the mines are overtaxed. I am trying to see if we can get hold of the full letter and then provide a fuller assessment. But here are the extracts from the letter as published by the Post - if the narrative holds in the full letter, this would represent a deeply flawed position  (and complicated  politically) :
I realise that the mines are mostly in areas where my party [Patriotic Front] dominates, but it would appear that no one in your government is aware of the damage the ongoing dispute [dispute between government and mines] is doing to the industry and to jobs on the mines.

Maybe no one in your government cares about the jobs that are being sacrificed by the delinquent and illegal tax regime introduced by the previous government....It is possible that your government would care if it stopped to think that loss of jobs in the mining industry carries its effect into all other parts of the job market, possibly even into areas where your party is strong.

As I remarked to your predecessor, the calculation that mining companies were paying 47 per cent tax was in fact wrong.

My party looks with envy at the wealth of Chile, a country which used to produce less copper than our wonderful country but now produces ten times more than Zambia. It is very easy to see, for anyone who is prepared to look that the entire Chilean economy has benefited enormously from a healthy mining industry.

Our government will move toward emulating Chile where the tax rate on mines is less than 35 per cent and where investment is thereby encouraged and jobs are created.... We believe it is necessary to be competitive with the best countries, not the worst. I am distressed to learn that your current Minister of Finance and his cohorts are pressurising the mines to capitulate to the previous government’s demands. I know this is because I can see all the investments that should be taking place and creating jobs are just not happening.

I wouldn’t be surprised, if he continues down this road, to see our country launched into a very public international legal case brought about because your party doesn’t honour agreements. This will no doubt cause us to lose even more investment and jobs....

Your Excellency, you and I are old enough to remember what happened to the mining industry in the first Republic. 100 per cent ownership and therefore 100 per cent taxation curtailed all investment in the mines by ZCCM, leading to the impoverishing of our country. We had to beg for our daily bread from the World Bank and other donors.

Thanks the country’s debt has been forgiven because we all know how servicing that debt was further impoverishing us all. It worries me that your government and its misguided policies are going to put us right back in that situation.....

Zambia needs international investors more than they need us. In order to retain and attract these investors, we must honour our agreements and also establish a stable, predictable, attractive and unambiguous tax regime. We cannot afford an adhoc tax regime. You may remember before the mines were nationalized whenever copper prices where high the miners of all ranks received a copper bonus.

Further, Your Excellency may remember that on 24th October, 1964 because of a stable, predictable and attractive tax regime, the New African government under UNIP inherited 764 million British pounds. Today, we have high copper prices what is the benefit to Zambia and its people?....

22 comments:

  1. Zambia needs international investors more than they need us. In order to retain and attract these investors, we must honour our agreements and also establish a stable, predictable, attractive and unambiguous tax regime. We cannot afford an adhoc tax regime.

    You may remember before the mines were nationalized whenever copper prices where high the miners of all ranks received a copper bonus.


    This article sounds very confused. Is the article praising nationalisation so we can return to giving copper bonuses to mine workers?

    Is this article defending the development agreements?

    If so, what is the difference between the PF-UPND and the MMD?

    I think this issue has to be solved IMMEDIATELY.

    ReplyDelete
  2. Well we know what the MMD position is on the mines and the Windfall Tax:
    Equinox president notes misinformation on uranium mining
    By Chiwoyu Sinyangwe
    Wed 01 Sep. 2010, 15:10 CAT

    And mines minister Maxwell Mwale said the government will not reintroduce the windfall tax on the mining sector to protect expansion and support the development of new mines.

    “I would like to assure the equinox board that under the leadership of President Rupiah Bwezani Banda, there will be no windfall tax,” said Mwale. “We would like to see increased activity in the industry.”

    ReplyDelete
  3. It is indeed difficult to make out what this man is talking about. First he complains about high taxation in the mining sector and then proceeds to complain about Zambia getting nothing from the high prices of its copper wealth. Well, will the next generation of leaders come forward please?

    IMO, Zambia can only realise meaningful proceeds from mining through high royalties and share ownership of upto 40%. This is what countries like Chile and Botswana have done. Zambia doesnt have the expertise to navigate the maze of corporate taxation.

    ReplyDelete
  4. This is the problem when you don't have a manifesto or any clear party policies, the wind direction ends up having a baring on what you say!

    Honestly, as much as I don't agree with RB on most issues. I agree even less with Sata. What a joke!

    Just as we promote the idea of asking the Govt (MMD) to clarify and justify their positions we should do the same with Mr Sata. Has anyone got his email address? I feel an email to him coming on. Anyone want to join in?

    ReplyDelete
  5. Okay, so I am not the only person that was confused by this letter. Just what is Michael Sata’s stance on mining royalties, corporate social responsibility, and all that comes in that bag of goodies? This is the problem with “where the wind blows” politics pa Zed.

    Whisper, I think you’re on the right track; someone needs to ask him these questions, and I think HH should be included since he’s also a would-be presidential candidate.

    ReplyDelete
  6. I am not sure where the confusion is. Worth reading it again!

    It is actually coherent. The PF wants to protect jobs and sees lower taxation as the answer. This has always been the PF position. It is a low tax party. People's concerns have always been how it can be a low tax party and expect to alleviate poverty. Its response has always been JOBS JOBS and JOBS. I don't think that actually makes sense when applied to some sectors, but Kafue has preached it enough to me so I may have grown deaf to sound logic.

    I think Frank raises an interesting dimension - where a greater state stake leads to lower taxation, but the question there is where will the money come from to up its shares? Whenever we think of nationalisation or greater state capitalism - we must explain where money will emerge from to undertake such activities. More borrowing? I think one way is simply for government to start owning its own mines - all new mining investment for example could be owned as a 50-50 e.g. the Angolan model for diamonds or something closer to that. But the money still needs to be solved.

    When I hinted at some confusion, I was actually thinking of the disparity between what PF MPs (e.g. Musenge, Kapema, etc) have said on windfall taxation and what the PF President seems to say all the time. The two seem at variance. These MPs are no ordinary MPs many of them are from the Copperbelt. They have consistently pushed for higher taxation. What I have been trying to understand is this gap between the MPs and some elements of the leadership (I say some elements because Kapema, Musenge are actually leaders in the party! Hence my confusion).

    Hope that helps!

    ReplyDelete
  7. Zambian Economist,

    With the existing mines, the issue is not as much "jobs, jobs, jobs" as it is of the validity of the development agreements (DAs). If, for example, the courts find the DAs to be valid according to International law and that International law takes precedence over Zambian law, then theoretically Zambia could be asked to refund the additional tax that were paid according to the new Zambian laws but are regarded as invalid according to International law.

    With future mines that have no signed agreements in effect, higher taxes are not a problem if the mining companies are prepared to accept it. If the companies are not interested in the higher tax rates, then Zambia has to decide if it wishes to lower the higher tax rates for the sake of jobs, or if it wants and has the ability to procure other mining methods such as contract mining as proposed by some, or simply leave the ore reserves idle.

    ReplyDelete
  8. Cho,

    I think one way is simply for government to start owning its own mines - all new mining investment for example could be owned as a 50-50 e.g. the Angolan model for diamonds or something closer to that. But the money still needs to be solved.

    The question then is - how much of the mining deposits are already being mined, or are already owned by foreign mining companies?

    ReplyDelete
  9. I get the fact that PF advocates a low tax rate, and does not want the windfall tax reinstated because they see it as a job killer. But what I am not clear about is why they do not see a correlation between low tax revenues from the mines and the fact that Zambians are not seeing the benefits from high copper prices. Or maybe I was overthinking the issue. :)

    ReplyDelete
  10. MissBwalya,

    It is even worse than that. If they are for the same neoliberal economics as the MMD, there truly is no reason to vote for the PF-UPND.

    We would be back to the 'i'm prettier' or the 'I deserve a turn at the table' or 'we'll bring development to Southern Province' type of politics.

    The truth is that without mining revenues, there is no money for economic diversifiction, and that spells economic disaster for Zambia. It puts Zambia on a road with a rapidly growing population and no job creation. The jobs created in mining are a joke - 58,000 out of a workforce of 5,000,000.

    That is why the 'we need jobs' defense of the attack on the Windfall Tax is just a vig leaf for corruption. I think the UPND has been bought too, and the PF is compromising on not taxing the mines in exchange for consensus that Michael Sata will be President.

    The mines have far too much influence in not only the Zambian economy, but in the Zambian political system, to speak of a functioning democracy. Now this is not unique worldwide, in the US they have the same problem with big business insinuating themselves by bying politicians, getting judges on the Supreme Court, and now buying elections.

    So if democracy is not the answer, what is the alternative?

    ReplyDelete
  11. Reuters and Fox Business Channel are reporting today that Zambia's main opposition leader (Sata)has called on the government to restore the Mining Agreements with Foreign Investors which it cancelled and reinstate tax concessions.
    Presumably this will make Zambia benefit from the high copper prices which it is currently not benefitting from! Honestly, this does not make sense.

    Interesting to note that the hated imperialists like the EU, World Bank and IMF are all of the opinion that Zambia is getting peanuts from its mineral wealth and are calling for increased taxation. Our own 'nationalists' both in govt and opposition suprisingly are on the side of the mining companies. What exactly is happening in Zambia?

    ReplyDelete
  12. "What exactly is happening in Zambia?" - Frank

    lol!

    There's a lot of money and it is all in the hands of foreign firms and the Chinese...

    ReplyDelete
  13. Zambian Economist
    A lot of money indeed so much so that all shades of Zambian politicians are opposed to levying taxes on these monies! Whose resources and whose monies are these anyway? What is the stake that these policians have in these mining companies? Is there a posibility that they have all been bought or rented?

    ReplyDelete
  14. MrK,

    The whole jobs argument is a weak one in my opinion, especially as you note the paltry number created thus far. If we look at the 58,000 or so created, how many of them pay a living wage? Can they show benefits being reaped by these newly employed miners, but also other businesses that provide goods and services in the area?

    PF has been drinking the “Wal-Mart kool-aid” provided by the mining firms– look at us; we’re hiring all these people and bringing your unemployment rates down. Just overlook the fact that we pay minimum wages, most of our employees aren’t eligible for benefits and still hover at the poverty line and rely on assistance to supplement their income. But don’t worry; we’ll contribute generously to your campaign. You scratch my back…

    We need a new way of doing things because this is not working, and those waiting in the wings obviously have no new ideas and are just waiting for their turn to dip into the coffers. Back to the drawing board!

    ReplyDelete
  15. MissBwalya,

    The whole jobs argument is a weak one in my opinion, especially as you note the paltry number created thus far. If we look at the 58,000 or so created, how many of them pay a living wage? Can they show benefits being reaped by these newly employed miners, but also other businesses that provide goods and services in the area?

    Just to expand on what I wrote before:

    The jobs created in mining are a joke - 58,000 out of a workforce of 5,000,000.

    That means 1.16% of the labour force is employed in the mines. And these are the good times. This is the employment in mining when copper is between $7000 and $9000 per tonne. Imagine we're back at $4000, there are going to be massive job cuts. What is the PF going to say then? Oh well, at least we had 58,000 jobs while it lasted?

    We are paying foreign mining companies $43,000 per job. That is absurd. ($2.5 billion in profits for 58,000 jobs created.)

    And the party that says they don't know of any other way of creating jobs, other than giving the mining companies $43,000 for every job 'they create', has no business being anywhere near government.

    The PF has to make a U-turn on this disastrous change in policy. And this nonsense is coming out of the UPND, which has always been a neoliberal party. But when the world is turning against neoliberalism, Zambia can't be slow and try to hang on to an ideology that has been discredited everywhere else.

    We need a new way of doing things because this is not working, and those waiting in the wings obviously have no new ideas and are just waiting for their turn to dip into the coffers. Back to the drawing board!

    What I don't get is that for the longest time, the PF has been much more progressive on the mining issue. What changed? Have the mines gotten to them?

    No one will or should accept the lame 'jobs' excuse.

    ReplyDelete
  16. MrK says: "What I don't get is that for the longest time, the PF has been much more progressive on the mining issue. What changed? Have the mines gotten to them? "

    MrK don't be biased. The PF has been very inconsistent on a lot of issues including their stance on mining taxes. The PF opposed windfall taxes when they were being introduced and used the same "jobs" argument. They supported the windfall taxes when they were being scraped off and today they are opposing mining taxes once again. The PF must make clear their position on mining taxes.

    The UPND is completely innocent on the issue because they have not really stated their opinion (publicly) on mining taxes. Let us be factual here and place the blame were it needs to be blamed.

    ReplyDelete
  17. Biased? Are you calling me a tribalist? Or just anti-UPND? Anti-PF, maybe?

    MMD’s removal of windfall tax angers opposition MPs
    Written by Ernest Chanda
    Thursday, March 26, 2009 6:41:08 PM

    Meanwhile, Roan PF member of parliament Chishimba Kambwili said those who were bent on removing the windfall tax were as good as a mortuary attendant.

    "Whoever wants to remove the windfall tax is just a malukula [mortuary attendant]. A malukula is, in a child's mind, where the child thinks when you die and you wake up in the mortuary the mortuary attendant will kill you. This is exactly what they [government] are doing," said Kambwili.

    "And posterity will judge them very harshly because they are taking away money for education, talking away money for health and giving it to the foreigners. Like what has happened at Luanshya, LCM [Luanshya Copper Mines] has pulled out without paying windfall tax. They want now everybody not to pay windfall tax. We cannot accept that nonsense."

    Efforts to get comments from UPND parliamentarians proved futile as they refused to talk.


    Anderson Mazoka, HH have always been pro-business, and the PF has always been characterized as Social Democratic, for what that's worth.

    Now the PF has turned against the windfall tax, and are trying to sell the old defunct "they'll bring jobs argument". Well we heard that from Levy Manawasa, and he was MMD.

    ReplyDelete
  18. MrK says: "Biased? Are you calling me a tribalist? Or just anti-UPND? Anti-PF, maybe?"

    Stick with what I said. I said biased. I never said tribalist nor anti-UPND nor Anti-PF.

    I said you are biased and let me clarify. You are biased towards the PF probably due to your preference for the PF, making it easier for you to lay blame on the UPND which is not valid in this case as the UPND has not made their stance on mining taxes public. It is for this reason that placing the blame on UPND is unfounded regardless of your opinion that they have always been pro business. What evidence do you have that would lead you to deduce that the UPND has influenced the PF in some way towards mining taxes? I would love to see it.

    Here is the reason why I am asking PF to clarify their position on mining taxes once and for all without all this flip-flopping.

    Zambian Opposition Urges Cancellation of Mine Taxes, Post Says

    March 29 (Bloomberg) — Zambia’s opposition Patriotic Front party urged the government to abandon planned windfall and variable-profit taxes for the mining industry because of the impact they may have on employment, the Saturday Post reported.

    The proposed tax regime may place current jobs at risk and threaten future expansion plans by mining companies, the Lusaka- based newspaper said, citing Michael Sata, the party’s leader.

    Finance Minister Ng’andu Magande challenged the Patriotic Front to hold rallies in Zambia’s copper-rich northern region to explain how the new tax regime will affect the companies, the newspaper said

    Magande said yesterday that lawmakers have rejected proposals by mining companies to change the proposed taxes, which become effective on April 1.


    This was when Mr. Magande was still finance minister.

    From “Quote of the week” by Zambian Economist

    “….We are not in favour of variable tax or windfall tax based on gross revenue. We therefore suggest that these two taxes be abandoned…..”.

    – Michael Sata (Post 29/03/2007)

    ReplyDelete
  19. Then in May 2010, Mr Sata produces this.

    Under the story "Zambia not consider higher mining taxes - Mr Maxwell Mwale"

    Mr Michael Sata Zambia's main opposition leader said that the country was forfeiting revenue after the tax was scrapped. The MMD government should listen to the cry of the people of Zambia and reintroduce the tax for the benefit of the country. We need the revenue to improve the lives of the Zambian people.

    (Sourced from Reuters)
    [End Excerpt]

    And today (In August) Mr. Sata is saying the following

    Our government will move toward emulating Chile where the tax rate on mines is less than 35 per cent and where investment is thereby encouraged and jobs are created.... We believe it is necessary to be competitive with the best countries, not the worst. I am distressed to learn that your current Minister of Finance and his cohorts are pressurising the mines to capitulate to the previous government’s demands. I know this is because I can see all the investments that should be taking place and creating jobs are just not happening.
    Source: Zambian Economist


    So what am I to believe is the PF stance on mining taxes? How can the UPND be blamed for something the PF has been inconsistent on since 2007.

    It is simply not fair to blame UPND for something PF is not clear on. You are being biased by blaming UPND on an issue which they have not made their stance public on. I assume it is because you prefer PF in govt. That is your choice but to drag UPND in the mud for an issue PF is not clear on is unfair and uncalled for.

    ReplyDelete
  20. Cho,

    My confusion with PF is whether or not it is actually a proponent of low taxes. As others have ably demonstrated above, Mr Sata has flip-flopped on this issue and members of his party have firmly camped themselves in the pro-windfall camp. Are they rebels??

    We don't know, because we don't actually know what PF's policies are. Hence my request for Mr. Sata's email address because I'd like to know the answer to this and many other questions relating to his proposed policies.

    ReplyDelete
  21. Whisper,

    You're right. The PF are keeping their cards too close to their vest.

    They can't make everybody happy, but they have to be clear on their philosophy and policy direction.

    Collectively, the PF and UPND received 58% of the votes in the 2006 election. That is a very comfortable majority.

    They shouldn't screw this up.

    ReplyDelete
  22. Whisper,

    I will see if I can find Mr Sata's email address.

    In fact it is possible to have all the email addresses for the top PACT leadership.

    ReplyDelete

All contributors should follow the basic principles of a productive dialogue: communicate their perspective, ask, comment, respond,and share information and knowledge, but do all this with a positive approach.

This is a friendly website. However, if you feel compelled to comment 'anonymously', you are strongly encouraged to state your location / adopt a unique nick name so that other commentators/readers do not confuse your comments with other individuals also commenting anonymously.