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Wednesday, 30 July 2014

Zambia's mining policy chaos

A confused picture is emerging on Zambia’s mining taxation policy. Mines Minister Christopher Yaluma recently said ., “It is our responsibility and obligation to ensure that we provide an enabling environment for the mines to sustain their operations in the country. We are looking at revisiting the tax regime. Anytime from now we are going to make known [the changes] after cabinet approval.”

That statement was made on 28 June 2014. It was interpreted by many, including mining companies, as suggesting that mining taxes were going to be reduced. This was because Yaluma’s statement came shortly after FQM announced that it would hold back from investing $1 billion in Zambia. 

But two weeks ago Christopher Yaluma gave an interview to CNBC Africa on the sidelines of the ZIMEC 2014 conference in Lusaka were he said Zambia is benefiting from mining. That apparently is a signal that mining taxes will have to go up because Government has a huge funding hole at present. 

The problem is that the PF government is broke facing an ever widening deficit. The earlier announced negotiations for an IMF bail out programe (SAP Mark II) which are scheduled to start in September 2014 appears to be running into some political problems. There are people in PF, including President Sata, that are rightly wary of a new SAP and would prefer not to let the long fingers of the IMF near Zambia again. 

So the only game in town for the 2015 budget is higher taxes. The mining companies are certainly expecting higher taxes. They have gone into overdrive. Last week the Chamber of Mines (CoM) misled a gullible public again by suggesting the “variable profit tax is the same as the windfall tax”. CoM also cautioned that it will "not help to tax the mines to the point where the mines run out of business". 

Whatever the position of mining taxes, there is no doubt that mining companies' mood must have improved yesterday when they read the pro PF paper The Post. It reported that Finance Minister Alexander Chikwanda wants the GRZ to pay mining companies the disputed US$600 million (about K3.6 billion) in VAT repayments over a staggered period. ZRA has withheld the money to mining companies that have failed to provide importer documentation required to qualify them for VAT reclaim on the zero-rated copper exports. 

The Post says the government currently does not have money to offset the VAT refunds being claimed by mining companies. So Chikwanda apparently says the only way for the PF government to clear this backlog promptly is to allow the Ministry of Finance access to to the recently-acquired US$1 billion which currently is ‘sitting’ at the Bank of Zambia. Of that US$1billion Eurobond, only US$300 million has been disbursed so far and the remaining the US$700 million is still with the Bank of Zambia. In short Chikwanda wants to give the money compamies the money from the Eurobond.

Chikwanda also wants to scrap the VAT General Administration Rule Number 18, which requires ZRA to obtain information from importers outside Zambia’s jurisdiction because it has "proved impractical and is responsible for delayed processing of VAT refunds for the mines". VAT Rule 18 was aimed at assisting the government collect more accurate trade statistics. Chikwanda has already suspended SI55 which was aimed at curbing illicit flows. 

So a confused picture indeed. Our friend Yaluma and his very "smart" buddy Chikwanda (who said we are all fools) do not appear to know whether they coming or going. One thing is clear : the PF and opposition need mining companies to fund their election campaigns. So whatever happens someone will keep laughing to the bank. And you can be sure it is not the residents of Chibolya compound or Kankoyo for that matter.  Its policy making, Jim, but not as we know it!


AUTHOR 
Chola Mukanga 
Economist | Consultant | Researcher 
Copyright © Zambian Economist 2014

5 comments:

  1. I support the move by Mr.A.Chikwanda to increase mining taxes. Last year (2013) total mining revenue was about $5.6 billion and the country only got about $530 million as both mineral royalty and corporate taxes representing only about 9% of total revenue. At this level of sales revenue the country should be getting at least $1 billion excluding Pay As You Earn.

    It was shocking for me when I read in today's news paper (The Post) that Mopani Copper Mines total revenue for 2013 was $1.1 billion and the profit before tax was only $58 million after selling 149,966 metric tonnes of copper. My quick analysis of the results showed that the total cost of mining or the full cash cost(C3) was $7,568 per tonne or $3.4/lb .This does not add up because no mine in the world can survive at this high level of cost.

    ReplyDelete
  2. Speaking of a pattern of behavior.

    From the Rothschild Bank's website:

    DE BEERS

    With the provision of funding for the creation of De Beers in 1887, Rothschild also turned to investment in the mining of precious stones, in Africa and India.

    PRIVATISATION

    The 1980s gave birth to the international phenomenon of privatisation. Rothschild was involved from the beginning and developed a pioneering role which spread out to more than 30 countries worldwide.

    EUROBONDS

    In London, N M Rothschild & Sons took an early role in the new Eurobond markets.

    ReplyDelete

  3. In fact, Rothschild Bank even did the privatisation of ZCCM.

    ZCCM-IH
    Board of Directors


    Executive Chairman, Mr. Wila D. Mung'omba

    Mr. Wila D. Mung’omba served as President of African Development Bank. From 1995 to 1998, Mr. Mung'omba was World Bank's appointed Team Leader in the initial preparation of the ZCCM Limited privatization Report and Plan by the UK based Investment Bank NM, Rothschild & Sons and international law firm Clifford Chance.

    ReplyDelete
  4. Chikwanda admits having stake in Sigma, supplier to the mines
    Edited by Chiwoyu Sinyangwe and Tilyenji Mwanza | Updated: 27 Aug,2014 ,14:07:50

    FINANCE minister Alexander Chikwanda says he has a stake in Sigma Enterprises, a company which supplies to the mines, but the public should not be privy to the information.

    And Chikwanda says President Michael Sata has not yet responded to his request to pay mining companies the US $600 million in VAT refunds.

    Chikwanda yesterday released to the media the “declassified” letter he wrote to President Sata seeking permission to instruct Zambia Revenue Authority (ZRA) to limit regulation and documentation demand from key exporters seeking VAT refund.

    During a press briefing yesterday, Chikwanda said his involvement in Sigma Enterprises should only have been a subject of public concern if the company was supplying to government departments or agencies.

    It shows a bias towards the mining industry. - MrK

    And Chikwanda said the government has an obligation to pay mining companies in excess of US $600 million in uncleared backlog of VAT refunds.

    “Government is by law obliged to refund [the mining companies]...ZRA have enough documentation and proof to know that they have to refund, that is all there is. What we are talking about on rule 18 is simply to streamline it,” he said.

    More...

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  5. Wynter Kabimba is fired, Guy Scott backs Alexander Chikwanda and the mines on the 'repayment' of VAT rebates.

    (THE POST) ZRA objects to proposal on mines’ VAT refunds
    Edited by Joseph Mwenda | Updated: 28 Aug,2014 ,14:14:42

    ZRA has objected to finance minister Alexander Chikwanda’s proposal to pay mining companies and other exporters their VAT refunds.

    “We are surprised that the minister actually went ahead to write to the President proposing to have ZRA streamline this regulation (Rule 18) against our advice,” the sources said.

    According to the sources, ZRA technocrats held a meeting with the Chamber of Mines of Zambia on June 3, 2014 where it was agreed that no amendment should be made to Rule 18.

    “According to this letter which ZRA wrote to the minister, it was made very clear that Rule 18 must be maintained as it was,” the sources said.

    “ZRA already gave its opinion to the contrary on that. The President is not a technocrat on these matters. We as ZRA are the technocrats and we resolved with our colleagues at Chamber of Mines. So if the minister needed further expert advice, he should have perhaps written to the Attorney General or sought other legal advice before writing to the President,” the sources said.

    “Like the minister rightly put it, government has procedures that have to be followed, including consultation. So we find it strange that he did not include our opinion over VAT refunds in his letter to the President. That is what makes people think the minister is being impatient on this matter,” the sources said.

    *****

    PRESIDENT SATA FIRES KABIMBA
    Edited by GEORGE CHELLAH

    PRESIDENT SATA FIRES KABIMBA

    LUSAKA, Thursday, August 28, 2014 – His Excellency, Mr. Michael Chilufya Sata, President of the Republic of Zambia, has with immediate effect revoked the appointment of Hon.Wynter Kabimba as Minister of Justice and party Secretary General.

    Hon. Edgar Lungu becomes the new party Secretary General and Minister of Justice, in addition to his portfolio as Minister of Defence.

    The Head of State thanked Hon. Kabimba for the service rendered to the Government.

    Issued by:

    GEORGE CHELLAH
    SPECIAL ASSISTANT TO THE PRESIDENT
    PRESS AND PUBLIC RELATIONS

    *****

    (LUSAKATIMES) Guy Scott moves to Chikwanda’s defence over VAT and shares
    Time Posted: August 28, 2014 5:59 am

    Dr Scott described the attacks on Mr Chikwanda as unwarranted and that the finance minister was above board on the VAT rule number 18.

    “This matter has been discussed here in my office, at ministry of Finance and elsewhere, the payment is not voluntary but within the law, it is nothing that Mr Chikwanda dreamt up and requires change, it is within the law.

    “We owe more money to the mining companies in VAT refund and we have to do something about it and not just leave it to accumulate or leave it to our next generation, the money is theirs,” Dr Scott said.

    The Vice-President said the question at hand was how the country would pay back the money.

    More...

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