Lately, a number of people including politicians who have no idea about Economics have been arguing for the Zambian Government to re-introduce Windfall taxes on the mines. However, much of the arguments for this re-introduction have been quite shallow and without much technical basis. Similarly, Governments’ response has been emotional and far from assured, rather the Government has instead been perceived to be in cahoots with the foreign mining firms.
However, it must be noted that Mineral extraction in most African countries including Zambia is a predominately “enclave” economic activity in which foreign mining companies import most of the equipment, technical, financial and managerial services needed to run their mines and export raw ore for further refinement or processing. Because industrial mining creates very few forward or backward linkages into the local or national economies, there is a consensus among UNCTAD, UNECA and the IMF that the paramount development benefit of mining in Africa is the potential to generate public revenue through a transparent tax and budget system.
Everyone has conveniently forgotten the history of the privatisation of ZCCM and the role that the donor countries played in particular, the British Government and USAID. It should be remembered that it was the World Bank that paid the fees of the mainly British advisers to Government. The privatisation of ZCCM commenced in 1996, after GRZ and the Boards of ZCCM and the Zambia Privatisation Agency (ZPA) approved the ZCCM Limited Privatisation Report and Plan presented by UK based financial and legal advisors, NM Rothschild & Sons and Clifford Chance, respectively.
On the advice of the World Bank, and other bilateral donors, the Zambian government, desperate to attract foreign investors into the mining sector during the 1990s, changed the tax laws to give mining companies the tax breaks they were asking for through the secret Development Agreements, which today we realize were negotiated in bad faith. A number of prominent Zambians were part of these negotiations, including two current heads of political parties. More importantly, the current Minister of Finance and other senior Government officials were privy to the negotiations and technical studies done at that time and should in the national interest provide open facts so we can make our own better informed analysis of the facts on the matter.
We know that Mining companies are generally against windfall taxes as they view windfall profits as a compensation for the financial risks of their operations. This signals an unwillingness to share, in a reasonable fashion, the rents of mining activity with governments while at the same time expecting tax subsidies to compensate them for financial risk. Multinational mining corporations, and their subsidiaries in Zambia, have been announcing huge profit increases since the mid-2000s, resulting from the unexpected steep increases in international prices of gold, copper, cobalt, platinum and other minerals. In fact, current projections state that copper will go beyond the US$10,000 per metric tonne within the first six months of the year. It closed the year 2010 at US$9,200 per MT. The question we should all be asking and debating is how best can the country utilise this opportunity for the creation of wealth for Zambians on a sustainable basis?
It is important that as this debate moves on it is done based on facts and it would help a lot if politicians both from the Opposition and the Ruling parties came clean first on their role in this decision. In Australia, it led to the removal of a sitting Prime Minister and a renegotiation by the new Prime Minister who campaigned on the basis she would re-negotiate the deal with all stakeholders. Instead of a super profit tax as earlier planned, Australia is now implementing the Mineral Resource Rent Tax (MRRT), which is a proposed tax on profits generated from the exploitation of non-renewable resources in Australia. It is the replacement for the proposed Resource Super Profit Tax (RSPT).
The profits-based tax, to be levied on 30% of the "super profits" from the mining of iron ore and coal in Australia, is proposed to be introduced from 1 July 2012. The RSPT was initially announced as part of the initial response to Australia's Future Tax System review, known as the Henry Tax Review, by the Treasurer, Wayne Swan and the then Prime Minister, Kevin Rudd. The tax is similar in concept, although different in operation, to the existing Petroleum Resource Rent Tax levied on off-shore petroleum extraction activities. The statement from the Australian Government stated that: “The breakthrough agreement keeps faith with our central goal from day one: to deliver a better return for the Australian people for the resources they own and which can only be dug up once. It is the result of intense consultation and negotiation with the resources industry.”
Surely, if a developed country like Australia sees the need to gain more from their mineral resources why is it so difficult for Zambia to do the same. It is vital the Government of Zambia engages all stakeholders, the Chamber of Mines, business community, trade union leaders, mining experts, academia, economic, financial and legal experts and any other well meaning Zambians and let 2011 see Zambia implement a new and more sustainable mineral tax regime for the country. Does Africa always have to wait for donors to do something good for their own countries'?
 Africa Analysis, Volume 5, Issue 1; ‘Breaking The Curse A CASE FOR TRANSPARENT TAXATION; Compendium of NGOs
The guest author is an international business consultant currently based in the United Kingdom