Mining Taxation - What Are We Doing About It?

Many economists in Zambia right now call for windfall tax for the mines in order to make mines contribute their fair share of taxes. Basically the idea is that mining is receiving a lot of returns as the copper prices are high. We should therefore setup a mining tax regime that will be able to capture that "extra" profit that the mines are getting. Its a fair argument and one that makes sense when you look at it. Every work pays taxes, Zambia being a small economy, the taxes needed to provide services are smaller. Therefore the profits that the mines make in a day would nicely cover all the expenses.

However, we must never live believing the mine owners are interested in the wellbeing of Zambians. If they did, the economy of Zambia right now would be far better than were it is right now. Only a fraction of what they get would change everything. But its that greedy and selfishness of mine owners that make the windfall tax a useless path for me. I know a lot of economists would be shocked to hear that. But I have points that need to be taken into consideration before you judge me.

Stealing Benefits Them

Mine owners will do everything they can to steal every little Ngwee they can from Zambia and proudly send it to the west without a problem. Switzerland makes more money from mining of copper than Zambia. Do the Swiss people have windfall tax?

These people will proudly contribute to the tax in Switzerland than Zambia where the copper comes from. All sorts of transfer pricing and complex avoidance of tax methods are employed to make sure they pay nothing to Zambia and pay a lot more to Europe.

The point is, its not the windfall that will make someone eager to steal wealth from our mines to contribute a fair share. They aim at stealing and having a windfall tax when there is a complex plan of transfer pricing, will bring little to the treasury in any case.

Most mines "sell" the produce at "arms length" to their sister companies. Now if that was true, Zambia would raise money tax revenue from copper that Switzerland. Since it isn't, there is a proper case to assume the "arms length" being talked about does not exist. If there was even an ounce of honest in mining companies, the returns from copper would be in levels that we would not complain about.

Government Has Sovereign Right to Tax 

We have to remember for this discussion that a government has the sovereign right to tax. Government is the only power that can tax or not. It has control on what it can tax and how it can tax it."

Allison Christians

"Tax policy creates and reflects relationships between the market, the citizen, and the state. As a result, traditional tax policy discourse centers around the premise that decisions about taxation should be made exclusively within nations, independent of outside concern and interference."

What we need to add to that is that, tax avoidance has outside interference and its that outside force that make certain decisions irrelevant. Windfall tax being one of them. It is easier to avoid the complexity of taxing these companies that make people choose a simple path of windfall tax. I think otherwise. We should remember that our government has the right to tax without interference, and it should make the right decision to tax.

So unless there is no way of detecting the avoidance of tax in the system, the government should make the right decision and take necessary steps to tax all that need to be.

Are We Going Back on Tax?

I always complained about lack of export duty on mineral outputs. Seriously, this is a wasting asset and we allow it to go out of the country without the exporter paying anything? That was a bad thing that the previous government took on board.

 

However, this has been nicely worked on and there is progress in that direction. What worries me is the loss of the "Sovereign Right" to tax. What we cried about on copper seem to have been transferred to Manganese!

Manganese is it now the new plan to change from copper to manganese? Or is it that the new players in the powers are linked to manganese? This is something we need to work on and not go back on taxation.

 

Why allow people to export and not pay for the wasting assests and you complain about the failure of the mining industry to contribute to the revenue share!

 

Nothing is more to my heart that a failure of the system due to the people involved in it. Seriously, we have the most sacred job of taking care of the country now for future generations to benefit from the wealth that we have. But the moment we come into the picture, we come up with plans of making sure people "steal" the assets that are needed to develop the country. We should not make statements which are parallel to what is happening on the gorund we must take it upon ourselves to ensure we do what is right for the nation. This clearly is not happening at the moment. It has not been happening for the past 30years or so. Zambia is bigger than all of us and we must be within our powers what is right.
I seriously didn't expect that the country's wealth will continue getting out of this country without paying the simplest of all charges - export duty. But it is happening.

Robbed Twice

Zambia's wealth was stolen during the colonial times. Unfortunately, thats not the only time. We have been robbed once before, and are being robbed right now!

Robbed Once

The colocinal masters came with one agenda - get all the minerals they can and any way that they can. They succeeded and got all the mineral wealth when they ruled over Zambia (then Northern Rhodesia). The result has been a totally poor country and the wealth developed Zimbabwe where a small portion was used by the settlers to develop the land they lived in.

But to all that can see what this country has got, will realize that at the time, it was impossible to fight the big guns with bow and arrows. The red Indians tried it and were almost wiped out of a land now called United States of America. We had to fight differently and in 1964, we won a great battle and got our independence. 

We must always remember what we got from this fight. They stole every piece of mineral they saw and gave nothing in return. The greed with which they came with was exhibited in all that they did and could only "leave" when there was nothing else to do. The truth is they never left.

I sometimes ask God why my people had to suffer all this while and yet we had the wealth that every one thinks and dreams about. I subscribed to the Paradox of Plenty to try and explain the inequality that has resulted from Zambia's copper and mineral wealth, it does not comfort me.

Our own people sold the mineral wealth in many forms. The stories of the Litunga and BRE selling all the mineral wealth and got paid for every extraction is a story Zambians should be familiar with. How it happens and the noise that results every year is because the people who benefited from that wealth want a bigger chunk still. None of the other paramount chiefs ever got what the Litunga got for the minerals in form of "salary" or income at one point reaching 8000 pounds a month. That was a direct benefit of stolen wealth by the way. 

They actually have used this as a point of pride here:

The concession entitled Lewanika to receive the payment of £200 annually and 4% on all minerals and precious stones mined in his territory for a period of twenty years.

I don't care if that happened with the agreement of the people. If it just included their own area would be fine to him as king. But they later wanted to increase the land in order to benefit from the same wealth that lay in other people's areas. Just like the greed of colonialists, they also learnt to steal what is not theirs. This is discussed in length here.

The point I want to bring out here is: every time we talk about colonialists robbing our country's wealth and mineral resources we should be honest enough and admit that our very own people aid and guide them on how to do it. In the colonial times, it was chiefs and people around them. They would sign anything as long as it brought something for them in the pocket the deal was done!

Sadly thats the truth.

Second Robbing

We have to know what kind of problems we are facing in the world as Zambia. We still have abundant wealth. We are very rich, sadly we are very very poor.

We have moved to midlle income country - on the few items that have been accounted for. Not accounted for in this country, but whenever some one got wind of what was collected from Zambia. So the wealth and result of that income is economic fiction to you and I. What is sad, is that people who get this wealth will actually declare it somewhere else proudly and share it amongst themselves with pride. Because they declare it there, the taxes are low. We can't see it here and we try to get a little from the stealing by raising taxes, they justify the none declaring of such undertakings as a result of high taxes. Surely there must be honour even among thieves!

Every Zambia in the colonial era knew where and what London was. People even now line up to visit the place. Nowadays, every Zambia should know about Ruschlikon, is a village in Switzerland. Because what this place receives, would change the very face of every Zambia. More so, the pocket of all Zambians. Our taxes would be low if only we got a share of what this village receives. My inspiration is here.

This is interesting as the robbing of our country's wealth is happening at the very time that I am writing this. Again this is aided by our people. Unlike Lewanika, the aiding now is from someone people voted for. I can say it as the London judgement can not be erased. Chiluba facilitated this in many ways. They actually lied about the status of the mines in order to sell it at a lose. But even that, the actual "dirt" from the mines was worth more than the mine was sold for. Least we forget:

"The judge concluded that though Mr. Chiluba had a salary of only about $10,000 a year during his decade in office, he spent more than $500,000 in a single shop, Boutique Basile, in Geneva. The shop owner, Antonio Basile, testified in 2008 that payment for the clothes sometimes arrived in suitcases stuffed with cash.

The goods are now stored in battered metal trunks by Zambia's anticorruption task force. There are piles of designer suits, monogrammed dress shirts and elegant ties, silk pajamas and dressing gowns. But most remarkable are the more than 100 pairs of size 6 shoes, many affixed with Mr. Chiluba's initials in brass. He is just a little over five feet tall, and each pair has heels close to two inches high." Its all here.

Mwanawasa tried to get something out, but died too soon. Conspiracies go here, but I never subscribed to any. Then Rupiah came on the scene and everything died a natural death. Thank God the situation was arrested and he only ruled for 3 years some say. But what happened in those 3 years?

Again, aided by our own people I should repeat.

Case for Nationalisation?

It is always strange to find an economist who subscribes to nationalization. I actually do in this case. We have to realize that mines and mienarl wealth that they bring at such levels call for serious re-thinking. We had the mines in the hands of Government, and now they are in the hands of the private sector. The two bring out one thing I would like all of us to know and think about. The returns from the mines were actually greater when the copper prices were down that when the prices are currently high. If a $10 million return came when the copper prices are low and only $2 million when they are high, it only makes sense as to get them back. After all, at a high copper price, $360 million is paid as taxes in some village in Europe. Thats one fact you have to agree with. But take that with a sharp head, not like the political rhetoric of Julius Malema. You have to get back on a footing that works better for every Zambian.

Regardless of how we do it, there is clear cheating and business conducted with parent company yet a claim of "at arm's length" in Glencore. Did you actually see how our own person laboured to defend a country he works for? I felt ashamed. He was caught unaware.

So if this was to continue, we will get nothing until the mines are declared unfit to mine anything from them. We nationalize, we get enough resources to plough back into the economy and we may actually get more benefits from this resource. America nationalized when the going was tough. We should not adopt economic policies that will not bring anything to the country when we all know how it should be done.

No economics is better than the economics that brings food on the table for all us and not the thieves. 

I believe there is a legitimate call for nationalization in the wake of transfer pricing, hedging and all manner of bad economics at play. Whilst doing that, we should cancel double taxation agreements that favour the west and disadvantage us. Actually, I think double taxation agreements which led to taxes being paid anywhere else apart from Zambia should not only be illegal but never signed and those signed canceled. We should make it a standing order that any shares exchanged on a company in Zambia should be taxed here at the rate applicable. Failure to pay those taxes should automatically trigger Government sanctions.

Moreover, we should setup mechanisms that will monitor and follow all transactions involving Zambia's mineral or other produce.

But nationalization is and will always be the cheaper option as long as we put in place a structure that will run the national resource company prudently and as a full time business.

Glencore

When many Zambians watch this documentary, here, they blood boils with hate. We end up hating the people benefiting from our wealth and the money that is generating. Not that we want to be selfish, but we want our fair share of the profits. 

Glencore has done a lot of harm. Unfortunately like many sad stories out of Africa. Our very own people are involved and at the middle of all this. Look at the man defending Glencore when his own children or grand children will have to ask him twice to what his contribution to this country was when he worked for Glencore.

But one thing we must see from Glencore, is how they used what we called a president to get what they wanted. In return he got hundreds of shoes, jackets, suits and shoes. African fools we end up being!

I have no favour for names like Glencore. I hope to live long enough to see fairness applied on that company. And the link to Bill Clinton makes sad reading that he even said there was no crime committed.