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It’s not the increase, mines are rejecting tax inconsistenciesBy Diggers Editor on 26 Feb 2019
We have noticed that those in government are finding it very easy to fool people into believing that mining companies are, without any reason, resisting to accept the mining tax increase brought about in the 2019 budget. With that argument, it can be understood why Copperbelt residents are showing their anger to their employers, vowing that they will not accept any retrenchment plans.
But the people of Zambia, especially those who earn their livelihoods from the mines on the Copperbelt, must understand this argument from both sides of the coin. Before they raise their axes to assault their employers, they must first understand what is giving mining companies the impetus to resist another mining tax policy change.
Technocrats say that the mining tax increase itself is marginal in real terms. But two things are cardinal to understand. First of all, we must admit that there is a lot of ill-motivated investment in the mining sector. It is true that foreigners are coming into this country with plans to dig holes and take out minerals without leaving anything tangible for the country.
The 2019 mining fiscal regime, which took effect last month, has seen an increase in mineral royalty rates by 1.5 percentage points at all levels of the sliding scale.
It also introduced import duties of five per cent on copper and cobalt, while also hiking export duty on precious stones and gemstones to a rate of 15 per cent, a situation that had previously prompted mining companies to threaten job cuts, while compelling Konkola Copper Mines (KCM) to downsize its Nchanga Smelter operations last month due to low availability of concentrates.
It is not in doubt that there is lack of transparency on the part of investors. Mining companies are not clean in their dealings. They may claim to be victims, but they are not innocent. There is a serious lack of full tax compliance from mining firms, through creative accounting and undervaluing tactics, which are depriving government the much-needed revenue.
But we feel government is allowing this to happen because its own house is not in order. If the government doesn’t have its house in order, there is no way it can succeed to put the mining house in order. For many years, this PF government has failed to have a comprehensive and long-term tax policy for the mining sector. This has exposed ineptitude and lack of expertise in tax policy framing and tax administration in government. What has made this mess more difficult to clean is that government has retired a lot of professional technocrats in the past few years. They have scandalized experts who understand the mining sector challenges, because they don’t want to be told the truth when they make a mistake.
Given the low trust levels in government by stakeholders, many people now believe that there is concealed private interest among those who walk the corridors of power to facilitate for a Chinese takeover of key mines. This message rings loud and clear through various media commentaries from government officials to the effect that mines can pack and go. Government proxies, including the Economics Association of Zambia (EAZ), have also echoed this message.
How do you say to mining companies that ‘you can pack and go’, and at the same time claim to be promoting a suitable climate for investment? This is what gives credence to even the unpopular positions taken by people like Hakainde Hichilema who seem to be siding with the mines’ position on the new tax regime. His argument is that this government doesn’t know what it is doing because it has no long-term plan for investment protection. It’s hard to disagree with Mr Hichilema because, indeed, this government is changing mine taxes like underwear.
This is the point that the Zambia Chamber of Mines has been stressing. From an investment point of view, inconsistent mining taxes are more injurious on a business than higher, but stable policy. It is not only costly to plan on a mine tax that can change with the firing and hiring of a Finance Minister, but it also repels prospective investors.
We are not sure if people have realised that just recently, mining companies were coerced at ‘gunpoint’ to drop their intentions to lay off staff. The government was even issuing statements, through the Ministry of Finance, on behalf of mining companies that there would be no retrenchments. It never happens like that! How can the Minister make a commitment on behalf of the investor, as if she is the one who pays salaries to the miners?
Kansanshi Mining Plc and the Kalumbila Minerals Limited were visiting by various wings of government; including Police, ZRA, Labour Commissioner, for over 10 days with even threats of arrests to mine directors! Should we go that far for an issue that is basically an investment matter that requires sitting on the table to discuss and negotiate using financial statements and other records in the hands of government?
ZCCM-IH sits on these boards and knows too well how much mining companies make! Now, mining companies are on queue sending messages that border on public relations: that they are here to stay and won’t lay off staff when they know too well that they are injured for prospective earnings, primarily due to import duties on copper concentrates.
Just in January, government is believed to have lost about US$10 million in revenue because of low output due to concentrate duties. This may explain the inconsistencies in messages among the Minister of Finance, Minister of Mines and the fired ZCCM IH boss, Dr Pius Kasolo.
Our point is that, before Zambians get misled on this issue and turn their anger on people who mean well for them, they must first appreciate what has been happening in the background. Once they understand the full picture, they will have good argument points against their employers.
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