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Friday, 15 October 2010

Global Mining Taxation (Fact Check)

One of the misleading statements we keep hearing from misguided voices within government is that all across the world governments are following Zambia's lead and reducing mining taxation. I can assure you that Zambia and Mongolia are in a league of two. The claim couldn't be further from the truth - precisely the opposite has happened. Below is the list of the actual developments regarding global mining taxation. These facts are all over the internet and you need not take my word. If people would stop being lazy they would not be so ignorant.   

Russia -  Earlier this year it reintroduced a 5 percent duty on nickel exports from Jan. 1, 2010 after suspending the tax at the start of 2009 to support local miners during the crisis. It is now proposing to raise nickel and copper export duties to 10 percent as early as next month as it searches for new revenue sources to plug holes in the budge.

Kasakhstan - Kazakh Prime Minister Karim Masimov in June said the resource-rich Central Asian state could reintroduce export duties on a range of raw materials.

Australia  - parliament will in 2011 vote on the introduction of a 30 percent Minerals Resource Rent Tax (MRRT) on iron ore and coal projects.

Chile - lower house of parliament last month approved a revamped bill to increase royalties paid by mining companies to raise $1 billion to fund reconstruction after a massive earthquake. 

India - in April raised the export duty on iron ore lumps to 15 percent from 10 percent, and the government in July considered hiking the tax further.

Tanzania - the Tanzanian parliament, home of Africa's third-largest gold producer, in April passed a new mining law to up the rate of royalty paid on minerals to 4 percent from 3 percent.

Ghana - Africa's number two gold producer, increased mining royalties to 5 percent from 3 percent as of March 19, though it includes a number of exemptions.

South Africa - the National Treasury in February said it will levy mining royalties that were postponed for a year due to the recession.

I have never reached this mining position through hearsay. I have reviewed economic theory, assessed historic trends, looked at where we headed and spoken to fellow experts . The consensus is clear  : we are being robbed. All across the world there's a realisation that metal prices are going up and we can really make a dent on poverty through higher revenues if we choose courage over cowardice, truth over deception. I really believe this is THE greatest economic question facing our country.  Millions of lives would be defined by the decisions Musokotwane is making for decades to come. Therefore this is no small matter. You can't be neutral on this matter. Don't take my word for it - that is a path of laziness. Study the evidence for yourself! 

Study the global trends and reach an informed position. I am here merely to help you consider all facts. Not to convert you to my position. I have never encouraged disciples! This website is not for that. It is spur you to a critical outlook on our pressing issues. It is for free independent thinkers. This is why we have people of contrasting ideologies all scattered on our threads. I have stated my arguments many times on this website, and I continue to do so. Musokotwane will not show you the evidence we continue to bring to the fore. How can he? Musokotwane has never produced a single policy paper on the mining question for public consultation. To garner your opinion.  On this generational defining question - what evidence has he shown you? Does he even care what you think? He wont even consult you to hear your opinion. He wont even intellectually engage with the issues but has resorted to calling those of us with a different opinion "unreasonable". That is the extent of his arguments. I understand he has no incentive to provide answers to anyone. The many MPs he pretends hold him to account are barely educated. He knows there's a large cadre of Zambians who are just lazy enough to accept any shoddy argument and do not study evidence properly. This attitude will not lift Zambia out of poverty. Only a rational evidence based approach will help us confront the greatest challenges we are facing. Unless we change how we think we shall continue to wallow in poverty and we have no one else to blame but ourselves. Like the children in the gospel, we played the flute but no one came. 

16 comments:

  1. Isnt Musokotwane just expressing the wishes or rather the 'thinking' of the 'Presidency'?. I do not think that the Zambian polity is sophiscated enough to allow independent decision making by members of the cabinet with regard to their own portfolios. Look at how these same Ministers 'believed' and sung from the same hymn that liberalising the International Gateway will 'endanger the country's security'. Exist Mwanawasa and enter RB and the lyrics were changed. 'Security' was no longer an issue; and liberalise the IG they did!
    It is the same with Mining Taxes. Under Mwanawasa the whole choir came to the understanding that Mining companies werent paying enough taxes commensurate with the size of the mining sectors contribution to GDP(an IMF official recently pointed out that the sector contributes only 1% to the national budget!). They convieniently have all changed the song now!

    Musokotwane as ex-Treasury Secretary and Economic advisor to late Mwanawasa was one of the officials who drew up the aborted tax regime. I am of the view that he knows the calls from a section of Zambians are not 'unreasonable' because Zambians are just demanding what he had initially proposed!. He is just a 'spineless' soul like many educated Zambians who have been reduced to cadreism for the sake of their political careers. Musokotwane has no courage to go against RB's 'wishes' no matter how misguided they are! Zambia, it seems, is not a country in which professional opinions are allowed! Hopefully one day Zambia will attain a critical mass of a professional cadre with both the spine and conscience to call a spade as such!

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  2. I share your frustration about this subject. Somehow the Minister of Finance – Hon Musokotwane has refused to embrace facts. It is unfortunate. Imagine if we fail to persuade a man of his caliber, what it is to pump sense into ordinary MPs?

    Remember the discussion we had about ‘international agreements, rule of law and good governance’? Everything we said then still apply.

    Our governors and elites in Lusaka are obviously grossly miscalculating the factors which can scare investors from coming. They’re still using a strategy Levy Mwanawasa used when we were really desperate for mining investments after Anglo-American and others pulled out suddenly. Even at that time Levy did not know that metal prices would skyrocket. If he did, I am sure he wouldn’t have committed himself to “give away” concessions. To make sure that this ‘bonanza’ continues – I am sure the investors keep on singing in the ears of our leaders that – they would pull out should they tamper with agreements in their favour. That Musokotwane keeps on agreeing with them, is what is scary.

    (cont....)

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  3. From the facts laid bare on global mining taxation, surely IF the same investors can pay those higher rates in other countries, what sense does it make to say that they can’t pay them in Zambia? Copper is copper everywhere be it from Chile, Peru, Russia, DRC or Zambia. They (investors) must be too happy to exploit our fear, carelessness and ignorance.

    Perhaps it is more of our ignorance rather than cowardice. The lazy-laded Zambians, who refuse to grasp what is at stake, is the biggest problem. There are not enough people to understand what is going on. We are shallow minded who just skim things on top without going deeper to see how we can be impacted. When you have an ill-informed citizenry, youth included, democracy suffers. For there is no way you can hold government accountable. Consequently Ministers get away with half-truths.

    Our media especially the independent ones like The Post – have not succeeded in raising sufficient awareness so that when government tries to mislead people they can jump in to demand the true picture. Media or somebody must try and explain some of these facts in understandable, simple language. How many MPs understand that TAXES are directly related to poverty reduction? Now that Dr Mphande is out of government, all of a sudden things are making sense. Why can’t these people listen when they are in government? Mphande and Musokotwane do not understand each other, yet each one thinks that he is talking on behalf of Zambians. Why can’t FACTS rule?

    To try and get this correct, that is why I keep on challenging the Zambian Youth that – the oddies when they were fighting for independence, they at least never allowed the colonizer to cheat them. Today the colonizers (in the name of investors) cheat us day and night. They are not even scared. And as I warned before, once you allow them to sit on the resources, they will use anything including weapons to keep us off. The Sinazongwe incident, is a case in point. Who would dare chase Chinese away from the Zambian mines once they are entrenched? We are really not foresighted.

    So, when you analyze Dr Musokotwane’s mind set about this issue, remember this: That investors have successfully poisoned our thinking, such that we become so maimed that we can’t question anything. They make us have a wrong notion of “attracting” investments. Our half knowledgeable politicians are easily coveted to endorse policies by mis-educated government elites and technocrats, whose sole interest is to please foreign investor and themselves at the expense of majority Zambians.

    This is a terrible situation we are in. I am not even sure that the opposition parties know how critical it is to get facts right. If they did, that would be another agitation point. But unfortunately most of the times, the debates are nothing but insults at each other. What can we do? Keep on hammering out these facts. Batila: umupama pamo watulile ing’oma. Some day those facts you pump out through the Zambian Economist will bear fruit. Cheers!

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  4. Certainly we need to be accurate about facts. But facts are often open to dispute, and they can be misinterpreted.

    In considering investments, whether foreign or local, stability is a vital factor. Stability does not require that there should be no changes. But it does require that investors be assured that taxation, and other regulations affecting their business, should be stable over a stated period.

    No one suggests that a country's tax regime should be altered between its annual budgets. Business people - and employees too - are entitled to a stable tax environment. The same applies to large and long-term investments, such as mines and power stations. But for them 12 months of stability is far too short. They need to be able to look well ahead, often for several years.

    The issue here is not the appropriate or 'just' level of taxation, about which there is lots of room for disagreement. The issue is that taxes should be dependable for an agreed period. Once that period - which by definition is known to investors in advance - has expired, taxes can then be changed. For a country to attract and retain investors it must offer a tax regime that is dependable for a stated period.

    Of course, mistakes can be made, and tax concessions are sometimes over-generous. But in that case the government has to live with its commitments. It should say: "We made a mistake, but we will stand by it for the agreed period". For governments to 'correct' their mistakes unilaterally always destroys investor confidence, which is an invaluable commodity.

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  5. Kaela,

    Even at that time Levy did not know that metal prices would skyrocket. If he did, I am sure he wouldn’t have committed himself to “give away” concessions.

    They could have written in a windfall clause if that was what they wanted to do. And after it was introduced, there was no reason for getting rid of it, other than to ensure maximum profits for the mining industry. Dr. Musokotwane was a non-executive director at ZCCM-IH. He never questioned the non-payment of dividends, thus defrauding the shareholders of returns on their investment.

    The theme is the same - when your main economic activity is mining, and the mines are in foreign hands, foreigners call the shots. They determine whether or not they will pay taxes or dividends or not.

    Globally, this is what happens when corporations accumulate too much power. They start to own the democratic process, bribe representatives, judges, presidents, and what you end up with is fascism (using Mussolini's definition - "when the state takes over the corporations, you have communism, when the corporations take over the state, you have fascism.") And that is what we are seeing with pro-corporate globalisation. The unrestrained accumulation of wealth and influency by corporations.

    In Zambia it has always been very blatant. In the USA, it is becoming more obvious with the corporate takeover of their Supreme Court, and the buying up of an entire political party, the Republicans, and part of the other political party, the Democrats (specifically the ConservaDems).

    I don't think we need to look for deep psychological explanations, money seems to explain most of it. It is clear that the MMD and parts of the PF-UPND are shielding the foreign mining companies from taxation.

    And that must end for Zambia to develop.


    Murray,

    In considering investments, whether foreign or local, stability is a vital factor.

    Why? What is the evidence that 'investors' are after stability, rather than profit maximisation?

    How stable is the DRC? It doesn't stop the likes of Nikanor, Glencore, Anglo-American, etc. from being involved there, even if they have to rent their own militias and army units.

    They are not after 'stability', they are not bond investors, they are after record profits.

    And right now, copper prices in Zambia are at an all time high. Time for the Zambian people to collect what is due to them, with interest.

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  6. Another Zambian in the Diaspora18 October 2010 at 09:41

    Sometimes what is needed is cadres to fight a cause. An example is South Africa- the ANC youth league led by Julius Malema, who is barely educated, are calling for nationalisation of mines. The government, intellectuals and investors have taken serious note and have been forced to bring this discussion to the table in recent months. In Zambia where are our youth leagues and university student organizations? What are there views on this issue, which, I agree with Cho is the greated economic question facing us right now?
    Surely there should be at least one opposition MP who feels passionately about this enough to champion the cause?

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  7. MrK, I totally agree with you when you dispel Murray’s argument on “stability”. This argument doesn’t hold water. I don’t know why he keeps bringing it up – unless of course he thinks that Zambians are too stupid who can’t see its baselessness. If everybody can hold their right to change their mind or be able to violate agreements, why can’t Zambia do it? The size of profits as you say, is what rules at the end of the day whether the host can keep their word or not. In any case the economics and statistics we have learnt say that – you revise your plans dependent on the situation and environment at hand. The Federal Reserve Bank (FRB) and indeed any Central Bank constantly review their interest rates depending on the economic climate. With volatile business cycles, nothing is written in stone. This is even before you factor in sovereignty considerations.

    Then you said – “The theme is the same - when your main economic activity is mining, and the mines are in foreign hands, foreigners call the shots. They determine whether or not they will pay taxes or dividends or not”. I don’t think it is a question of PF-UNPD or MMD shielding foreign mining companies from paying taxes. It is more of lack of competence on the part of our governors and policy makers. We don’t know or lack confidence in expressing what is right. While these people are open to bribes – foreigners do not block them from implementing proper governance if they wanted to. Thus, it is a question of being unable to govern ourselves properly.

    Just as, I don’t think it is a question of following a wrong model. Free market enterprise administered in the interest of the people works. China and India shows that it can. China is a Communist State taking advantage of free market enterprise to enrich themselves. If Musokotwane can sit on a Board and yet fail to represent peoples’ interest – whose fault is it? Ian Smith might have been correct when he said that – “these people (Africans) will take a thousand years before they know how to rule themselves”. In short what I am saying is that – we have bungled our own affairs and nobody else.

    Finally, when the majority of ordinary people don’t know what is at stake, nothing boils them up so that they can protest. Keeping them passive is now the pass time for those enjoying the spill over from skewed economic progress. Too bad!

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  8. Mining Nationalization will be the worst policy South Africa will ever adopt if at all it does.

    There is enough evidence in Zambia's old nationalization policies for this. That will be the downfall of the South African economy.

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  10. Kaela,

    Just as, I don’t think it is a question of following a wrong model. Free market enterprise administered in the interest of the people works. China and India shows that it can. China is a Communist State taking advantage of free market enterprise to enrich themselves.

    They developed through heavy state intervention. Nearly every country in the world has. China never threw open it's domestic markets to foreign corporations. In Zambia, they never left. That's the difference.

    If Musokotwane can sit on a Board and yet fail to represent peoples’ interest – whose fault is it?

    I don't think it is a matter of finding whose fault it is. The problem is that the system where ZCCM-IH is going to get dividends from foreign transnational corporations was never going to work. Only (even majority) state ownership can ensure control. (And when I say the state, I don't mean the government of the day.)

    Look at the USA. No one can say the US 'doesn't know how to govern itself'. And yet in the US, these transnational corporations get away with paying an effective tax rate of 0% to 5%.

    And the US have the systems in place to monitor, they have world class universities and famous law schools, they have entire departments that are dedicated to accounting practices. And still they can't collect.

    The reason is that at a certain point, if they go unchecked (and unregulated), corporations not only accumulate money, they accumulate influence as well.

    And that is what we are seeing in the MMD. I estimate that the mining companies pay the MMD $200 million a year in bribes.

    So are we looking at individual failure, or a rotten system?

    Ian Smith might have been correct when he said that – “these people (Africans) will take a thousand years before they know how to rule themselves”. In short what I am saying is that – we have bungled our own affairs and nobody else.

    Ian Smith was so narrowminded I'm surprised he could spell his own name. It takes two to tango. Someone to take the bribe, but also someone to pay it.

    And Ian Smith - he thought that Rhodesia would last for a thousand years. It lasted 15 years. His powers of prediction or judgment are nothing to go by. Remember that he was defeated by Robert Mugabe. So who's smarter, or more foresighted?

    And another thing. What the media claim happened in Zimbabwe and what happened in Zimbabwe are two different things. Land reform worked like a charm. If you look at key economic indicators of Zimbabwe, you can see that as land reform started in 2000, the economy actually grew in 2000 and 2001. Tobacco exports were up, the trade surplus was up, and there was very moderate inflation. It was only in the year 2002, when the Zimbabwe Democracy and Economic Recovery Act of 2001 came into force (signed on December 21st 2001) in the year 2002, that you see the first trade deficit, a dramatic decline in tobacco exports (*) and the start of hyperinflation (**). This is because ZDERA 2001 contained a section (Section 4C) that put an immediate credit freeze on all the Zimbabwean government's credit lines at IFIs - IMF, World Bank, African Development Bank, Asian Development Bank, African Development Fund - 9 are mentioned in the bill itself (Section 3 titled Definitions).

    But if you read the 'mainstream media' (Reuters, CNN, BBC, etc. or is that the Rhodesian Front/MDC) it was 'mismanagement by Mugabe' that crashed the economy. Instead, it is a demonstrable fact that the Bush Administration did it by abusing America's influence on International Financial Institutions. And did so illegally, just as they illegally invaded Iraq (what's new).

    Africans know perfectly well how to govern themselves. The actual skill is to sidestep the machinations of the West, whether that is the World Bank/IMF and their Washington Consensus, or old colonial era corporations who own the media and will try to destroy a country for financial gain.

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  11. Finally, when the majority of ordinary people don’t know what is at stake, nothing boils them up so that they can protest. Keeping them passive is now the pass time for those enjoying the spill over from skewed economic progress. Too bad!

    I would disagree. Last week journalists almost went into a tizzy because a minister called them 'dogs'. She now says she called them 'watchdogs'.

    When the people KNOW that they are being robbed, I don't think they will be docile.


    * Source: Special Report, FAO/WFP Crop And Food Supply Assessment Mission To Zimbabwe, 5 June 2007
    Table 1: Zimbabwe - Key economic indicators, 2000–2007

    ** See here and click on the image to enlarge. This image was put together by the Economist Intelligence Unit, which is run by the rabidly anti-Mugabe John Roberts. They were trying to tie President Mugabe to the collapse of the Zimbabwe Dollar - little did they know they were dutifully supplying the evidence of why and when the Zimbabwe Dollar collapsed. Notice that the Zimbabwe Dollar fell more in the year 2002 (when ZDERA came into force) than in the 6 years leading up to it combined.

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  12. It could very well be that the countries listed as increasing mining taxes are doing so on mines not subject to development agreements, there is no information provided showing if they are doing so or not. In Zambia's case, it could also raise mining taxes on mines not subject to development agreements (if the development agreements are held to be valid in court). Then the response from the mining companies could be gauged to see if it was worth raising the taxes.

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  13. Zimbabwe's mines minister Obert Mpofu showing how it's done.

    Zimbabwe top diamond producer in three years — Mpofu
    By: TH
    Posted: Monday, October 18, 2010 1:19 am

    ZIMBABWE could soon become a top diamond producing country in the world and output from Marange could easily top 40 million carats in three years, Mines and Mining Development Minister Obert Mpofu has said.

    Minister Mpofu made the remark after visiting India’s diamond city of Surat last week where he signed a Memorandum of Understanding on trade in diamonds with Surat Rough Diamond Sourcing India Limited (SRDSIL).

    He said revenue from diamond mining operations of the Zimbabwe Mining Development Corporation and its partners Mbada and Canadile, in the Marange fields would top US$2 billion annually within the next three years.

    Mbada and Canadile, said Minister Mpofu, were only mining 10 percent of the 77 000 square hectares of land pregnant with diamond reserves.

    "The two diamond-mining firms are extracting diamonds from 1 000-hectare land. We have the remaining 76 000 hectares land having a huge reserve of diamonds. If it is exploited then we may become the world’s top diamond producing country," said Minister Mpofu.

    Read more...

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  14. Not only does Fred Bantubonse congratulate the government for not 'giving in to public pressure', now he would like the abolition of the variable profit tax too. Apparently, 'we all need to support the mining industry'.

    Parliamentary Committee takes Bantubonse to task over windfall tax
    By Florence Bupe
    Mon 18 Oct. 2010, 18:50 CAT

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  15. Kaela says my argument about 'stability' doesn't hold water, and he asks, "If everybody can hold their right to change their mind or be able to violate agreements, why can't Zambia do it?"

    Zambia can certainly violate agreements, provided that we don't mind being regarded as thoroughly untrustworthy, and provided we don't want investment. You cannot, as the saying goes, have your cake and eat it.

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  16. In realistic terms, if the issue of the validity of the development agreements went to the International courts and if they were found to be valid, I would speculate that the courts could order remedies to compensate the mining companies for any violations of the agreements such as by attaching copper export earnings. The possible implications of breaking legal agreements are something to be considered - these agreements are created for a reason. I do not work for the mining companies.

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