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Wednesday, 5 January 2011

The Argument for A Windfall Tax (Guest Blog)

According to the Minister of Finance and National Planning Situmbeko Musokotwane, copper production is expected to exceed 720, 000 metric tonnes, a level of production that was last seen in 1973. This places the country within reach of the medium-term target of one million metric tonnes per annum. And as we all know, the prices of copper have re-bounded on the London Metal Exchange (LME). But most shockingly, the government refuses to re-introduce the mineral windfall tax.

In the words of President Rupiah Banda, government will not re-introduce the windfall tax for mining companies because it has the potential to stifle the growth of the mining sector : “The abolition of the windfall tax will remain intact and as government, we shall not listen to those calling for the bringing back of this tax, let them just watch and see what government is doing to attract investors to the mining sector,” he was quoted recently as having said in the media.

Listening to this kind of talk, one wonders whether we all live in the same country. What investors is the President talking about? What is the essence of attracting many investors to exploit our natural resources if our people can not get the benefits? Or maybe the benefits are the shootings, low wages, poor safety and the like? It is common knowledge that when the mines were under the control of the government through the Zambia Consolidated Copper Mines (ZCCM), Zambians, not just miners, were able to access the full benefits from the revenues.

For a fact, Zambia is rich in mineral resources, which the multi-national companies have been exploiting. For the country though, it only enjoys a tiny fraction of the benefits. A report by the Tax Justice Network for Africa (TJN-A), Action Aid, Southern Africa Resource Watch, Third World Network Africa and Christian Aid titled "Breaking the Curse: How Transparent Taxation and Fair Taxes can Turn Africa’s Mineral Wealth into Development" released in 2007, clearly shows this. The report says legislation that has set low royalty rates, combined with development agreements grants companies further tax concessions and holidays of up to 25 years, deprives countries of the much-needed revenues.

On top of this, Africa loses vast sums each year to corruption and illegal tax evasion by multinational corporations (MNCs). The document draws on evidence from seven mineral-rich countries including Ghana,
Tanzania, Malawi, Zambia, South Africa, the Democratic Republic of Congo and Sierra Leone. It reveals questionable accounting practices by multinational companies that conceal the true value of their operations while a mixture of secrecy and flawed laws passed by parliaments across the continent further deprive African people of revenue.

When presenting the 2011 National Budget to Parliament last month, the minister of finance and national planning said he expected revenue from the mines to increase because of an increase in production. However, the minister in-charge of national planning could not tell how much he was expecting. How then can he plan? But for all we know, the mining sector’s contribution towards the treasury in Zambia is still very low. If anything, there is no voluntary compliance of tax payments by the mines. This is so despite the fact that taxes are not economical, political or moral issues but a constitutional matter, and a foundation of any state. Our objective therefore as a country is to maximize our revenue base, and the mines present an opportunity to do so. After all, they are making huge profits, thanks to very high copper production levels and high prices on the London Metal Exchange.

According to estimates, Zambia is able to collect as much as US$400 million annually if it was to re-introduce the windfall  tax. With this kind of money, why should we continue to borrow or ask donors for money to enable us finance our various projects including the building and maintenance of roads, schools, hospitals as well as the improvement of our water and sanitation situation? Indeed why should we struggle to provide basic social services to our people when we have that kind of money which we have voluntarily refused to collect? Is this not a way of embracing poverty? Certainly, our leaders can do better on the issue of windfall taxes.

Daimone Siulapwa
(Guest Author)

2 comments:

  1. Actually, he did announce that we were on track to reaching the 1 million production target by 2015. This seems to be your main focal argument, but there are clear production estimates both within the budget and MTEF documents, and in IMF reports.

    Other than that, this article doesn't really make any concrete points, or mention any sources. It is more an emotional appeal. Whereas emotional appeals deserve their own merit, I for one would have preferred a more logically constructed set of arguments backed by a firm sequence of data and sources.


    YM
    LSK

    ReplyDelete
  2. YM LSK personally, I have problem with people who hide their identity when debating important topics. This article is not emotional neither does it lack in rational merit. YM you have just decided to blind yourself to the critical points raised. In fact its you who has not made any reasonable argument (with due respect). The genius of the Windfall Tax is that it is self regulatory; meaning it adjusts itself according to profits levels! I don't know what statistics you require to find this kind of taxation fair!

    Cletus Ntimpa

    New York, USA.

    ReplyDelete

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