Lun 17 Jan 2011 12:53
Killing the goose that lays the golden egg: standoff over Wi
Written by ...........
Sunday, 16 January 2011 17:59
The decision by the Zambian government to discontinue levying windfall tax on copper export earnings has continued to attract public criticism. Despite government’s firm and publicly stated undertaking not to reinstate it, the clamour for it has not died down. Instead, it has continued to be intermittently re-kindled especially as the price of copper, the country’s main export, has continued to soar.
Various lobbies ranging from opposition political parties, NGOs, professional associations and individuals have continued to call for its reinstatement and to question the authorities why not.
The protagonists insist that by discontinuing it, Zambia is merely short-changing herself for no valid reason. In the heat of the exchanges, some members of the government have even been accused of lacking patriotism and of being basically spineless, too ready to grovel before foreign investors!
The tax in question had been introduced in 2008 as part of a new package of taxes for the mining industry to bring taxation in line with the copper boom that was beginning to gather momentum. It was projected then that the package would earn the country an additional US$415 million in revenue. It was not to be!
For, by the end of that year, the global economic downturn was in train triggering a great deal of uncertainty about the future of the mining industry. The price of copper had by December declined to a low of US$2,811 per metric tonne from the record high of US$8,985 in July 2008. Two mines closed down and there were fears that more would shut down.
There was real apprehension that if the mines were not afforded some breathing space, disaster would not be averted. Thus, among the relief measures extended to the industry in the 2009 budget was the discontinuance of windfall tax.
It wasn’t easy.
The decision met with extreme hostility from the opposition. The first attempt to pass the enabling legislation in the national assembly had to be deferred. When finally the opposition lost the vote that it had forced on the measure, all opposition MPs walked out in protest!
The windfall tax had been designed to be triggered off at three points: it was levied at the rate of 25% for a copper price of US$2.50 per pound, 50% at a price of USS3.50 and 75% when it sold at above US$3.50 per pound.
The point that was repeatedly made by the opposition was that there was no need to write it off the statute since it was self-regulating. If the price went below the threshold, it would automatically not apply.
MPs further accused the government of being only too willing to tax its citizens to the marrow while “allowing investors all sorts of unnecessary tax concessions”.
Government was equally adamant that it was an inherently bad tax because it was levied on gross earning without regard to production costs and this was not good for investment. But there were also other background issues that created discomfort.
When the mines were privatized, the copper price was a pittance. Government then entered into agreements with the buyers that allowed a whole range of concessions including on tax to sweeten “the pill!”
By imposing the new tax regime, government was kind of unilaterally walking away from its contractual obligations under those agreements and there had to be legal consequences. The mining companies who were not amused by the windfall tax in particular had protested right up to the National Assembly now threatened to take the matter to the London Court of Arbitration. Apprehensive of the adverse publicity among investors that this could generate plus possible court sanctions, government was anxious to tread carefully.
Thus, the windfall tax was discontinued.
Since then, the president, the ministers Finance and Mines have all categorically and publicly stated that it will not be reinstated because of its potential to stifle growth of the mining sector-the engine of the economy and there’s something to that.
Apart from a feeling of having been led down the garden path, the mining companies had responded to the tax by suspending development and exploration projects and in some cases, laying off labour ostensibly to meet rising costs. The tax did seem to dampen the mood among them even before the shock of the global downturn set in. But not even the strong government stand has stopped the sniping.
The debate was re-kindled in the National Assembly when, presenting the 2011 budget in October, Finance Minister Dr Situmbeko Musokotwane indicated that 15.5 percent of it would be financed from domestic and external borrowing.
Opposition MPs latched on that wondering aloud why government should borrow when revenue could be raised through the windfall tax especially that the copper price had reached its highest level ever. The finance minister has recently warned of the dangers of “over-taxing” the mining industry. Speaking on the occasion of the announcement that Konkola Copper Mines Plc (KCM), would soon list on the London Stock Exchange(LSE), he warned of the danger of stifling growth and frightening off would-be investors in mining through the by clamour for higher and more taxes. He observed that this was the same attitude that led to the difficulties experienced by the state-owned mining company, ZCCM which was left with virtually no money for re-investment.
The country needed to be prudent enough not to kill the goose that lays the golden egg, he said. (Sila Press Agency)
BY ARTHUR SIMUCHOBA
http://gazettebw.com/index.php?option=c ... s&Itemid=2
« L'aventure n'existe pas. Elle est dans l'esprit de celui qui la poursuit, et dès qu'il peut la toucher du doigt, elle s'évanouit pour renaître bien plus loin, sous une autre forme, aux limites de l'imagination. »
( Pierre Mac Orlan )
( Pierre Mac Orlan )
