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Friday, 26 November 2010

Mining Taxation Debate (A Response to Kyambalesa), 2nd Edition (Guest Blog)

I think we all agree here that – when it comes to extractive resource which has finite lifespan, the thing to do is to maximize earnings from that resource and develop alternatives before it runs out. Copper and other minerals will run out, what happens then? Why are our current officials so adamant about the re-introduction of windfall taxes? Don’t they understand what is at stake? Why are they refusing to increase copper revenues when the prices are good?

Many people have counseled that we should levy these windfall taxes. Chares Milupi, Bob Sichinga and others have talked about it. Even some important cooperating partners like the US Embassy and IMF have also suggested that we should go for it. Nej, our people don’t see it that way. Here in Canada, Potash a strategic resource based in Saskachewan, has been protected by Federal government from aggressive (hostile) takeover by foreign companies. In other words, national interests superseded international open business concerns.

MrK has part of an explanation – corruption. I also butted with MrK about ideology – [put differently, the belief that neo-liberalism as being the fault]. Corruption and reliance on capitalism may certainly be to blame. But we need to analyze more deeply to find a solution. For, we can’t go on like this. Explaining the theories and merits and demerits of windfall tax, has been done many times on this space. Chola Mukanga, Henry Kyambalesa and others have given us before deeper analyses on this issue, yet nothing happens.

Chola Mukanga, did a comparative analysis of types of taxes being charged in other countries – and clearly disproved the argument that if windfall taxes were re-introduced, that would scare investors. Indeed, there are many places where tax schedules are much higher than those being proposed in Zambia, yet companies are still mining. I also did spell away fears of – the Rule of Law argument and the violation of international agreements. I argued that – where “sovereignty” counts, any agreement entered into can be undone. It happens every day. This is premised on the logic that – a country cannot work against ITS OWN interests. It is illogical to give away everything you own – in the name of being respectful, leaving nothing for yourself.

Perhaps what is missing in our case – is having a core of Zambians (minimum threshold) who understand the importance of this issue (mineral taxes & royalties). Do we have enough ordinary Zambians who clearly understand that, what is going on is a suicidal course? If there are, then they don’t show it. And why Zambians don’t react even when their interests are at risk is puzzling. One explanation is – ‘a curse of peace’. We think that, if you protest to protect your interest is unpeaceful. That is why even when you are shot at, you do not react. We’ve seen it in Sinazongwe. We’ve seen it when the “anti-corruption clause” is being removed. There are many examples.

To make matters worse, we’ve wimpy opposition parties. The nearly 70% they represent in popular votes in Parliament is meaningless. The Minority government pushes down our throats anything they want without fear of any repercussions. Because opposition parties fail to publicly protest or block in Parliament any move that MMD takes regardless of its disadvantages to Zambians, they (government & MMD) get away with it. [Add this to the corrupt resources at their disposal]. Therefore, we depend on the goodwill of MMD. And because MMD is not willing to collect fair and reasonable taxes on behalf of Zambians, unless Zambians use their vote next time round to express their displeasure – Zambia risks becoming a resource grabbing ground for foreigners.

During KK days – perhaps UNIP and its government, was a far much more superior model in looking after national resources and assets. For sure, the attitude then was pro-Zambian as opposed to pro-investors today. And unlike now, you had an “enforcer” force. Today, because there is no enforcer block any where in the system – that is why even if corruption is rampant, there is no body we can call on to stop it or discourage it. The people who are supposed to check it are either too ignorant, passive, or themselves bribed out or bought with forex, sugar or fertilizer packs. Until when the Youth or the slumbering Zambians wake up – we are on the road of being enslaved yet again by foreigners.

In addition to the above comments – I want to re-iterate, that on major points, I have the same point of view as stated on Chola Mukanga's rebuttal Mining Taxation Debate (A Response to Kyambalesa) . Henry Kyambalesa has no convincing reasons why: a) Zambia is not entitled to earn more money from copper when the prices are good; and b) Zambia should defer charging for its resources to some unspecified time in the future. Besides the price fluctuations, who knows if copper will still be useful then? It could be obsolete before then.

To support the bureaucrats’ reluctance in taking on international investors is preposterous. Zambians are entitled to economic benefits from the sale of their resources. Why should investors enjoy all the benefits of high prices? To diversify into other non-copper sectors and for building infrastructure necessary in a functioning economy, we need money. And money should come from copper when the going is good. We need to go back to KK’s “spend and share era” from today’s “sink or swim era”. Elites in Zambia can afford to wait – because, they’ve been enjoying ALL the resources coming Zambia’s way in the last forty years. Not the poor Phiris and Tembas.

To argue that – “you don’t want more revenue because it will be squandered or spent on increased expenditure”, is a silly argument. Where is your financial discipline? Are you saying that our financial managers are allowed to waste as soon as they see more money? Besides, to say that – “if you tax them more, they would squeeze you out somewhere else” – say in low wages, poor safety etc., is the same thing as admitting that Zambians are either unsophisticated or stupid. Where would your watch dogs be?

You see – to expect that foreign companies (in for making a quick buck) would 100% be honest in their dealings with you, is utopia. You see, even if you wanted to – you cannot legislate companies to be more responsible. You have to bite them from behind IF you want them to do what they are supposed to. They won’t do it on their own accord. Thus, I don’t know why any body would honor or worship foreign exploiters. In developed economies where people are more awake and make everybody accountable – companies try to take a moral and ethical responsibility in becoming part of the holistic solution. But when they are in our backyards, they don’t care. This is the more reason why we should tender our possessions more carefully. Food for thought!

Kaela B Mulenga
The guest author is an economist based in Canada

Related Posts :
Mining Taxation Debate (A Response to Kyambalesa)
A defence of the current mining taxation regime (Guest Blog)


  1. Finance Minister Musokotwane in the Lusaka Times states that " the abolished windfall tax was defective and not consistent with international practice as it was based on taxing revenue. "

    Well the mineral royalty tax is a tax on revenue.

    Mining firms to pay over K1 trillion in tax arrears

    Dr Musokotwane further disclosed that all the mining companies have agreed to start paying taxes based on the current tax regime.

    And Dr Musokotwane says the design of the abolished windfall tax was defective and not consistent with international practice as it was based on taxing revenue.

    He explains that the windfall tax did not take into account the cost of production.

    He says the normal practice is to tax windfall profits as is the current practice for mining, banking and telecommunications.

    Former Finance Minister Ngandu Magande, on the existence of a windfall tax on economic sectors in Zambia outside of the mining industry:

    Rejecting windfall tax is scandalous - Magande

    Magande said Musokotwane was confusing himself by saying that windfall tax was not acceptable in the current MMD regime when he had introduced the same tax to the telecommunication sector.

    “He is saying on page 22 of his budget speech, ‘In this regard the telecom companies that will generate US $250 million kwacha profit or below will continue to be taxed at 35 per cent, while any profits above 250 million will now attract tax rate of 40 per cent’; isn’t this windfall tax?” Magande asked.

    PS, I don't think that is a tax on revenues, just profits, and it is a progressive tax on profits.

    However, revenues are already taxed through the mineral royalty tax, so the precedent exists, unlike what Finance Minister Musokotwane seems to say.

  2. I think we are giving the Zambian Resources away if we cannot benefit out of the higher copper prices. IT and other soft ware tools are in higher demand thus driving the aggregate supply and demand. I agree with Bob Sichinga that it is a mistake to ignore such a revenue that Zambia needs to develop it is infrastructure.

  3. Former Finance Minister Ng'andu Magande's response to minster Felix Mutati's latest interview.

    Magande describes windfall tax as paramount
    By Joseph Mwenda
    Tue 30 Nov. 2010, 04:01 CAT

    Magande: it is unfair for public officers to accuse people of being ‘ignorant’.

    Also see here.

  4. The issue of tax is just one of the many issues why Zambia is 'crawling' in terms of development. It appears the Government want to please the investors so they don't pull out their investments even if that means Government losing out on revenue. All in the interest of jobs for the people and the people keep them in power. The problem is that the majority of Zambians though can be said to be passive, to me they just don't understand. Who remembers riots in KK's era? It was people understood what was at stake, and you can imagine that time there were no political parties that someone should probably say they were influenced. We can certainly do better.


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