Comments on Zambian Economist: A Poor Statement

I dont wont to comment on those issues, but I can ...

2011-12-16T09:27:41.401Z

I dont wont to comment on those issues, but I can at least comments on the statistics, or misuse of them ...

The Chamber has not provided us with the whole story.

The effective tax rate (ETR) was estimated to be 80% only at very high prices and (I think) only when the windfall tax was NOT deductable against income tax. (This was changed soon after the initial proposal in 2008.)

It is misleading to quote one ETR. The calculation depends on the price and the cost facing each mine. One must therefore present either an average ETR across many states of these variables or show a range of ETRs.

It would also be interesting to see what the average ETR of the current tax regime is. Given the very high royalty rate I suspect it is higher than the 2008 regime with windfall tax. It is certainly riskier for the mining companies as it not as progressive.

According to the shill for the mining sector, Fred...

2011-12-14T16:18:30.553Z

According to the shill for the mining sector, Frederick Bantubonse, the windfall tax would have raised the effective tax rate for the mines from 31% to 80%.

The Zambian government should engage foreign auditors- Chamber of mines
TIME PUBLISHED - Wednesday, December 14, 2011, 4:31 pm

The refusal to institute a collectable tax, which ...

2011-12-14T15:32:18.802Z

The refusal to institute a collectable tax, which the windfall tax is, creates the impression that when it comes to the mines, the PF have taken the mining industry's penny and sold the Zambian taxpayer out.

Not only does it throw into question their willingness to have anyone other than Zambia's tiny middle class pay for the expenses of the political class, but it throws into doubt their seriousness in the battle against corruption.

We can go even further and compare the Minister of...

2011-12-14T12:31:39.494Z

We can go even further and compare the Minister of Mines' statement and the Minister of Finance's statement (from a week or so ago):

Alex Chikwanda (Finance Minister)- "It would be unwise for the government to introduce a windfall tax when metal prices are unstable and are usually trending downwards"

Wylbur Simuusa (Mines Minister) - "For now (the royalties) will stay, but if it becomes a crisis, if prices crash, we might have to review the regime... not in 2012 but for 2013, in the next budget"

One Minister is saying that the government would like to follow an implicit variable rate royalty (what in Zambia we call a Windfall Tax) - when prices rise GRZ increases the Mineral Royalty rate, when prices fall they reduce the Mineral Royalty rate. While the other Minister is saying that the government does not want an explicit variable rate royalty, which does exactly the same thing but does it predictably and transparently.

This suggests either poor understanding of what a Windfall Tax does (or what it has the potential to do), or some other thinking by these Ministries.

It may be somewhat confusing to use the term 'Variable Rate Royalty' instead of 'Windfall Tax' but I hope that using this term helps in understanding essentially what a 'Windfall Tax' is.

(I wont even go into the fact the it shouldnt matter whether a Windfall Tax is imposed if prices are falling.)

Sources:
http://af.reuters.com/article/investingNews/idAFJOE7B806S20111209

http://www.dowjones.de/site/2011/11/zambia-wont-introduce-copper-mining-windfall-tax.html

http://www.miningweekly.com/article/zambia-says-wont-re-introduce-mine-windfall-tax-2011-11-30

LSkeconomist, I agree especially with the regulat...

2011-12-13T21:48:27.994Z

LSkeconomist,

I agree especially with the regulatory capture.
This is particularly problematic when issues of environmental damage and mining safety comes in. Dan Hugland's assessment is relevant here:
http://www.zambian-economist.com/2011/04/policy-evolution-in-zambian-mining.html

Well said. One general observation i have about Za...

2011-12-13T19:58:01.954Z

Well said. One general observation i have about Zambia is that our policy formulation is wrongly done at a very high level (i.e. by Ministers). There are countless numbers of technical civil service staff who have been trained at great expense, and must rightfully be given space to properly FORMULATE policy. Let your technical staff invest in a bit more research before you come up with policy positions. Ministers should ideally debate already well thought out policy pronouncements. It makes us look somewhat incompetent to see this level of flip-flopping.

Another big challenge with the current mining policy is that we simply rely on the mines to provide us with information on the health and status of the industry. So naturally you do not expect them to say they are minting gold (literally and figuratively). There is a concept in economics called 'regulatory capture', where the regulators rely on the regulated for information on how best to regulate. That is basically what has happened to Zambia.

My country really has a long long way to go.

Zambian Economist editor, whoever you are, you are my soulmate.
LSKeconomist