Finance Minister Alexander Chikwanda, who has been busy quietly doing his job in the middle of the collapsing governance of the country under Scott's watch, has finally spoken on the pressing mining tax issue that is threatening the viability of the 2015 budget.
Chikwanda says he has successfully resisted the “stampede” by some companies trying to force amendments to his taxation plans: “[the mining tax changes] will pass through in its current form...These people don’t allow us to think about our own ideas, they just want to think for us...some mining companies want to stampede us to change the tax regime”.
It will be interesting to see whether that bold declaration does stand. It has not been easy for Chikwanda. Mining companies led by Barrick Gold have been heavily lobbying Vice President Guy Scott to force through the changes. They have also lobbied opposition parties, many who are already in the pocket book of mining companies.
But Chikwanda, a key member of the Cabinet team now aligned to the new PF President Edgar Lungu MP has been resisting, with strong support from the rest of the team. This is Chikwanda reborn because he has been known to be a darling of the mining companies. Indeed he once called people calling for a windfall tax “lunatics”.
There were fears in some quarters that the death of President Sata may see a reversal of taxation policy in favour of big foreign companies aligned to Vice President Scott. There were reports that Government was backing away from plans to impose a 20 percent royalty rate on open pit mining and 8 percent on underground mining, as part of the abolition of a two tier system.
But as we noted last month, one reason why the new fiscal regime is likely survive is that any reduction in taxation will almost certainly plunge Zambia in further fiscal problems. Money would need to be found somewhere - possibly by increasing taxes on ordinary Zambians through a new emergency budget.
The 2015 Budget is already very tight and with the elections coming we expect more leakage and wider economic challenges. It would be economic folly to reverse it only to borrow more or face a fiscal crunch. We think it makes absolute sense for Chikwanda to stick to this taxation framework and only review it in the next Budget cycle, if necessary.
The mining companies have raised some good points this should be part of a general debate not through covertly corrupting politicians to achieve a one sided aim. We need a top down review of mining policy as a whole. Not just on taxation. The biggest problem in Zambia is fundamentally how policies are done. That is what needs to change.
The other reason the tax regime may survive is that mining taxation issue has now become an election issue. PF is betting that Zambians still have fresh memories of Rupiah Banda’s first act when he got elected. He went on to immediately abolish Mwanawasa’s windfall tax. Rupiah Banda is not coming back, but what is clear is that whoever is president in January 2015 will have a big say on what happens to the taxation regime.
Chikwanda and his PF colleagues have calculated that it is politically safer to keep the regime, rightly or wrongly. They are likely to make the argument to the Zambian people that if you elect a new party after the presidential by-election in January 2015- they will need an emergency Budget and all questions will be re-opened. It is not too tricky to guess who mining companies want in Plot 1. That will be their argument. The opposition have so far not articulated a position that anticipates this argument.
Do you support the new mining taxation regime? Or should the next president abandon it? Who do you think is likely to keep it? Should it be kept at all?
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