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Sunday, 5 October 2014

VAT refund crisis

Glencore (owners of Mopani Copper Mines) last week halted operations at its Sable Zinc Kabwe mine because of withheld valued-added tax refunds owed to the company. Mopani has also suspended part of an $800 million plan to boost production of copper by 50 percent.

The Zambia Revenue Authority has held back on paying mostly mining companies more than $600 million VAT refunds, because it says exporters haven’t complied with a rule requiring import documents from the countries the products end up in. Mopani alone is owed more than $200 million in refunds.

We must not forget that GRZ through ZCCM-IH owns 10% shares in Mopani Copper Mines. Though we should also remember that MCM has never declared any dividends to ZCCM-IH. There was talk a year ago of GRZ completely exiting ownership of mining companies and instead raising the taxation levels. But that was rolled back.

Incidentally for all the talk of Chikwanda having shares in mining companies people forget that GRZ's mining taxation policies have always been complicated by the shares it owns in some of these mining companies. It partly struggles to set an optimal mining tax across the piece because it is always thinking about its shares. 

There other reasons of course but it does point to the need for a Green Paper on mining policies which can allow people to input into the policy development. Then a White Paper can then be published. Only then are we going to have a Zambian policy that rather than a policy of the party of the day.   

AUTHOR
Chola Mukanga
Economist | Researcher 

2 comments:

  1. Hi Cho,

    We must not forget that GRZ through ZCCM-IH owns 10% shares in Mopani Copper Mines. Though we should also remember that MCM has never declared any dividends to ZCCM-IH.

    The mining companies own the board of directors of ZCCM-IH. When they were paid $18 million in dividends, they couldn't fall over themselves fast enough to give it back and buy mining stock.

    They were even privatised by the owners of De Beers, the world's biggest diamond mining company.

    Glencore (owners of Mopani Copper Mines) last week halted operations at its Sable Zinc Kabwe mine because of withheld valued-added tax refunds owed to the company. Mopani has also suspended part of an $800 million plan to boost production of copper by 50 percent.

    This foreign ownership of the mines has created a crisis of national sovereignty.

    When you're seeing politicians coming forward to defend the non-payment of taxes by the mines, or the 'refund' of $600 million VAT with money borrowed from the Eurobond instead of building roads and schools, it makes a joke of democracy.

    Did you know that GlencoreXstrata is Chaired by Tony Hayward, of BP infamy? He is now a lieutenant of Nat Rothschild, with whom he is invested in a billion dollar venture called Vallares. (Google: rothschild hayward vallares)

    These are the corporations that can put pressure on the Zambian government, because the Zambian government no longer is the sole owner of ZCCM.

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  2. The 20% royalty tax sounds good, however there is probably some way that the mining companies come out paying fewer taxes.

    Chikwanda to abolish current mine tax regime
    By Staff Reporters | Updated: 09 Oct,2014 ,14:30:40

    ALEXANDER Chikwanda has decided to abolish the existing mining tax regime and replace it with a mineral royalty-based system, Ministry of Finance sources have disclosed.

    And Chikwanda wants to sell off 27 per cent shares from the government-owned Zambia Consolidated Copper Mines Investment Holding to private individuals and interested institutions.

    Meanwhile, Chikwanda plans to disband the entire Zambia Wildlife Authority (ZAWA) and replace it with a new department under the Ministry of Tourism, which will take over its operations.

    The finance minister is tomorrow expected to present the 2015 budget of about K46 billion which, if approved, will be K4 billion bigger than the current one.

    Sources at the ministry disclosed that Chikwanda wants to use next year’s budget to simplify tax obligations for the mining companies by removing corporate tax, among others.

    “It’s clearly indicated in the 2015 budget that he wants government to amend the tax laws in order to change the current format of tax administration. If you analyse it properly, you can see that he is trying to make sure that the administration of tax is amended with a target on bending VAT Rule 18 in order to facilitate the payment of tax refunds to exporters, particularly the mining companies,” sources said.

    The sources said Chikwanda has, however, projected a higher tax collection using the restructured mining tax regime by increasing the rate of mineral royalty from six per cent to eight per cent for underground mining operations and from six per cent to 20 per cent for open cast mining operations.

    “He says he doesn’t want to overburden the mining companies with other taxes, including corporate tax. But again when you analyse this, you realise that the revenue gain from this will be less than half of the K3.6 billion [US$600 million] that he wants to pay the mines in VAT refunds,” the sources said.

    And the sources said Chikwanda has proposed the sale of 27 per cent of government shares in ZCCM-IH in order to supplement funding for the 2015 budget.

    “This may end up being another chaotic budget because he has already factored in the privatisation income from the mine into the 2015 budget expenditure estimates. So this is like selling government assets from the company but only for consumption,” sources said.

    The sources said Chikwanda wants ZCCM-IH to conform to the Lusaka Stock Exchange requirement that prohibits single stakeholders from owning more than 75 per cent shares in a listed company.

    Meanwhile, sources said Chikwanda has allocated about K117 million towards the rationalisation of the ZAWA operations.

    “He has also provided for the creation of a new department under the Ministry of Tourism to take over the functions of ZAWA. This means ZAWA will cease to operate in its current form,” said the sources.

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