So What Is Wrong With SI 89 of 2013???

There has been a lot of debate over this piece of legislation leading to its death. Few actually know what it entails. I thought I should touch on this matter as a way to get back online after weeks of absence!

So what is it? Statutory Instrument 89 of 2013 had one action and it can simply be explained as: it allowed mining companies to export mineral ores and concentrates without paying export duty. So they only paid mineral royalty and then got free "exporting rights". Mineral ores and concentrates? - That is rightly described by our president as soil! I agree with him in full. 

Some say, but mineral royalty was paid! Yes it was! But like all costs of production, mineral royalty is deductible! So its taken as a cost and will affect their overall "profitability" for tax purposes. But on the other hand, export duty sticks and will be "revenue" to government and the people of Zambia. Especially that the item being exported is in raw or intermediate state. on the other hand, if value addition has been done to this, from concentrates or ores to finished or semi-finished products, you can export without duty since you have added value. I actually believe our mineral royalty is useless on the basis of being deductible if we want to get something out. But sticking with best practices, we have it!

From the above therefore, one would expect mining companies to be interested in adding value and then export without duty. But we have a strange bunch of investors that would otherwise find any loop-hole to export without paying taxes. So they stockpile and make it impossible for the people of Zambia to collect the mineral royalty. In my own belief, this is the worst kind of blackmail that we have since in the mining sector and it should be fought with strategy.

Export duty would be the only sure way of getting something out of this. But it was almost tactically dodged! I wont go into who did this and why. That to me is a political and assumption laden topic which would not do justice on this blog.

Mining Tax Regime

I think our mining tax regime needs not only a face-lift, but an entire body work. There has to be a way that we make sure the mines do the best in there work and contribute to this country. 

Our selling of the mines is the greatest mistake that Zambia made. We may have had to sell, but we should have done it with out heads, not cheques! Any sell is welcome, but it must be done in a way that will benefit this country and the future generations especially that it involves non-renewable resources. It is for this reason that I always regard Chiluba's government as selling the biggest part of Zambia. I stand by my words.

Let us be frank, if the mines wont pay taxes and are not owned by us, then why do we have them? If we own them and don't pay taxes, its our mines, our exports and our returns. If we make no profits, we have at least got the benefits that the mines currently get. Why would they own mines which will never make any profits? But there are towns in europe that benefit from the returns on the mines when the same mines fail to pay export duty is it really rational for us to let the mines be in the same private hands they have been?

Option one as far as I am concerned is get the mines back and pay them for the wasted time. We then find a way to run the mines. 

Inefficiency? Well, every parastatal is expected to be inefficient. But serious, ZTE, Philips and BBC are parastatals, would we say they are inefficient? I should add that Zamtel is a parastatal and there must be something that was done when it was sold that has improved its efficiency. That is what is needed to be done also in the mining sector. If the current owners have made it efficient, we too can make it efficient. After all, they have made foreign owners happy!

Option two is to make sure we change the mining tax regime and ensure that the mines pay their fair share of taxes. Why is it that there is always a blackmail when government changes or tries to tax the mines? Employment is the only contribution these mines add to Zambia. They also use it as a tool to blackmail us to have their way. So if we run the mines, we control the employment, get the financial benefits and don't have to worry about tax avoidance which to me has been a bigger problem. If we can't tax them properly, we will never get anything out of this, and we will continuously complain about it.

We need to resolve this issue in full and in our favour. I hate thinking about the silly court cases that they always want to threaten the people with. But seriously, I think we need to up our game and prepare adequately in getting back the mines. This is a failed attempt at privatization. 

Back to S.I. 89 of 2013, it allowed mining companies to export mineral ores and concentrates without paying export duties. Clearly this meant, they mine and get everything without a single ngwee left in the country except the employment they created. No one should support this, and we should make sure we do everything possible to stop it.

Effects Of No Electric Power On The Economy

I have ignored confronting ZESCO on the issues on power and what they are doing to this economy. But I have noticed, the more we ignore the issue, the worse the situation turns out to be.

So no ignoring and I have put on my fighting gloves as this issue cannot be ignored any further.

Electricity As Power In The Economy

One thing is for sure, in our country Zambia, the issue of power is important as it is the only source of energy for feed our hungry needs for economy progress. Not even our phones would work without power for a week. My laptop cannot be on without power for over two hours - maybe thats why I'm thinking of Asus Transformer with the potential of over 10hrs of no power!

I have bought a laptop charger for my car as I can buy fuel and charge whilst driving. That handles my problem - but only temporarily. The main problem is ZESCO. And since we are not doing anything about, it stays the same.

ZESCO Company or Baby Fed!

I have always wondered what is so special about ZESCO that makes it take us for a ride this long. Then I ask myself, if this company is a public enterprise, it should respect us as the owners and provide the necessary things or we may sell or shut it down. That it exactly what it means. Zambian people own it! So they should control it.

There are two things which shock me about how we handle business in Zambia. And until we find a way to stop this behavior, we will always be in trouble. 

Why? Just look at this:

• We negotiate taxes! We negotiate the birth right of being a nation so we can give people or foreign companies "incentives". The mere fact that this country is peacful and welcomes the investor is an incentive enough. But we go ahead and give then even the little we could have got from them. We need to stop this and move on progressively.
• We spoon feed a company (like ZESCO). It ends up depending so much on government. It gets loans with no plan of how it will repay them. And the debt is stuck on government. Because of that, it over charges the people while companies like mines get "favourable" rates. It may make sense to you but, it does not to me! If this was a company setup logically, it would put rates that make sense from the mines and not hammer the people.
  
  The sad part of this is that, mines get favourable treatment from all over, when they needed to be paying their equal share of the taxes. So you and I pay not only our taxes, but the mines' taxes and the salaries for ZESCO employees. Then power is taken away from our homes and put in the mines for the mines to rip even more wealth. Is this fair?

In doing the above, we have ended up being a failed generation. There is little we can show our children the positive contributions we made to the country. Zambia is in the state it is today because we don't do anything about it.

ZESCO's Tax Contribution

Do we know the tax contribution of ZESCO? I think we should know. We should also know how much loans they contract as we end up paying for this. I don't think it is too much to ask. We own the company. We should know how much taxes it pays, the dividends, then the amount of foregone customs and taxes that ZESCO enjoys. Then we should look at how much we are paying the workers. Its just fair and right for us owners.

Economy Effects
Without power, we can't power up our laptops and make reasonable income. We can't run servers from our houses to power up net-stations in Zambia. So we end up paying for server space in Europe or Asia. This is an out-flow of resources to other countries. Will government get taxes from that money? No way my friend. So we are probably the only country in the world without a ".com" community. And thats just 12-20 volts of power for our PCs and laptops. That partly explains why South Africa has almost every company with .co.za and in Zambia even government institutional websites have".com", ".org" or ".net". e.g. www.zambianconstitution.org (surely we are not even proud of .org.zm.

That is the cost of such critical elements in Zambia's economy like electricity and so on.

Computers people are all over the country. But have no means to be supported. All great .com companies are run and start from homes as it is cheaper and will give you time to start the busines, see the mistakes and then go on a full time scale. With ZESCO in existence, you will be in sane to even think of running your PC without a power backup system. All my websites are hosted in Asia. When they ask me why, I give excuses about not having time to configure and manage them all day. Truth - no there is now way I can run them here without paying through my nose to ZICTA and which ever of our 13 service providers - not sure who many actually host from the 13!

So my .com dream died when I looked at the cost of doing anything in that direction in this country with such power and expenses which favour foreigners and the rich.

Now imagine those with ideas of electronic inventions. Or manufacturing items. We are killed before we even start. Thats is the real effect of such power nonsense.

These are issues that should come into play for every company that receives such unwarranted favorable treatment. I know we all want this to happen to the mines, but surely, why not to every company that seems to know be doing the right thing.

I think we should be given a platform to do this. Not all of us can be politicians in order to put in place favorable business environments for our business. So we need to be looked at as well.

I am a Zambian I deserve Better! And ZESCO is not helping in any way. It should be made to do this just like all mines that feel taxes should not be paid coz they invested in the mines. Yes, but I am a Zambian, I own the minerals. You own the means to extract. If we disagree, you go with your means, I look for someone or I do it myself. But will you find the mineral I own? No! So I deserve better.

I am a Zambian, I Deserve Better!

Tax Incentives :(

I have always had problems with tax incentives.... simply because I believe if someone is investing, he is not doing you (as a country) a favour. He is in it for the money, he knows he can make enough profit without incentives before he starts, and the tax incentives simply make him "super-normal" profits! Prove me wrong! No one single person would invest if the profit margin is non-existing or if the profit is only coming in after the tax incentive!!!

My looking at tax incentive maybe wrong to some of you. But in the same vein, thats why I have little understanding of the role of Zambia Development Agency (ZDA). I seriously need someone to educate me! If you are doing a course and the school says do all your assignments, tests, etc, but to encourage, we wont mark them as we will give you those marks (about 50%) and you just need to get more than 50% from both the assignments and the final exam to pass the course - who would let such a chance go begging???? That my people is how I see the tax incentive.

I have always said, to an economist, only two things are certain: death and paying of tax! We will all die, and we all should pay tax! So the logic of tax incentive violates my belief - and I can prove it!

Tax Needs

Taxes are paid for infrastructure, security and other public goods which governments put up. So if a real investor asks for tax incentive, ask him if he can do the roads, pay the police, hospital staff and their buildings while he is running his investment. If he refuses, he shouldn't get the tax incentive! No one investor would be willing to not pay taxes if he wont be assured of security through the police, courts of law, access roads, etc. So if he asks for tax incentive, he simply wants someone else to pay for those services! Just on this point, whats the role of ZDA? To unfairly ask people to pay for services used by these wealthy companies?

Incentive Benefits

I have been looking at a report that will show me the benefits of tax incentives in Zambia (as opposed to the benefits the country would have had if taxes were  paid)! I believe that is the single most important reason for continuing with incentives in this country. Without it, we shouldn't even think about it. What benefit would tax incentives bring if they provide no benefits? We would be doing a dis-service to ourselves, our children, and our children's children!

Getting High on Incentives

I think we have reached a point that we get high on incentives, we may even start asking companies to invest through an incentive of not requiring them to register as a company. Seriously when we reach a stage of allowing companies to steal, as an incentive, we can't sink lower than that. This is through what someone called the VAT "incentive". My little education would not understand this, but I believe people think this is possible.

Let me explain my failure to understand the VAT incentive.

VAT is a consumption tax paid by you and me on final goods that we buy for consumption. For example cooking oil, soft drinks, etc. So the company selling you these things will "hold the tax" and submit to the revenue authority. You pay, they take it to government. If you give that company a tax holiday for that kind of tax, you are asking people to pay to the company (for their operations) and not for public services! Is this normal? I think there is no difference in that action with some someone thieves high-jacking an armored vehicle taking taxes to the Bank of Zambia! Money is illegally being pumped into the company by people who don't want to invest in that company and for no benefits. Its like you simply change the one who is supposed to tax from the tax authority (in this case ZRA) to the company. I think the issue would actually make sense to someone people if you explain it better like this:

The action is like asking government to give back the taxes paid by the people to the company to do with it as it wishes. So the government goes and cuts a cheque equivalent to what that company brought in as taxes. 

There is no basis, no logic! The tax burden is born by people, the company has nothing to do with VAT. They don't pay it, they simply collect it for government. So if you give them what you call an "incentive", you simply giving them money or investing in their company as a government! I would add and say, thats theft! 

I think the only logical tax incentive is to allow every single entity to pay the correct amount of tax due, so that in time, they can pay less as the requirements are met. Without this, they actually open up an imbalance in taxes required, and would lead to more taxes paid in future. I always say, paying less taxes, is actually asking to pay more taxes!

If our taxes don't meet today and tomorrow's requirements, we will need to pay more taxes in future! Don't believe me? What taxes do you think people in Greece are paying compared to what they paid some years ago? Any failure to raise money by a government will lead to people paying more to meet those demands. I know a government can borrow, but ultimately, those loans will be repaid from taxes in the end! There is no one single source of revenue for government that can replace taxes. Actually with tax incentives, you may end up paying taxes to make up for the taxes that a company needed to pay. More so if that is a foreign company which would just pack its bags and leave!

We have to one day call for the end of a thinking that one needs to incentivize investment! Investment comes with or without incentives. As long as someone knows that they will make a great incentive, the business environment itself is enough incentive. Zambia has incentives in that area, investments are safe, we just need to get the taxes and build great infrastructure as the last incentive - not giving companies money! 

Augmented Tax Incentive Economics

I'm always amazed at how people in this country take taxes as an unnecessary evil which should be avoided at all times. Any chance that is presented to someone to avoid being taxed, they jump for it. So maybe the issue of taxes has not been presented to everyone in their complete sense. I know I may have touched about it from time to time, but I don't think I have aimed at hitting the 'nail on the head' as they always say! So here is my blog-ness attempt.

What is tax?

A compulsory contribution to state revenue, levied by the government on workers' income and business profits. (That's as simple a definition as I can find).

What is tax revenue used for?

Do we need to look at that? Ok maybe we should as missing one element of this can spell disaster. The most comprehensive use for tax that fits this discussion is on wikipedia:

Money provided by taxation has been used by states and their functional equivalents throughout history to carry out many functions. Some of these include expenditures on war, the enforcement of law and public order, protection of property, economic infrastructure (roads, legal tender, enforcement of contracts, etc.), public works, social engineering, and the operation of government itself. Governments also use taxes to fund welfare and public services. A portion of taxes also go to pay off the state's debt and the interest this debt accumulates.

So why pay tax again?

As outlined above, all services you require from government are provided for through taxes and borrowing (loans, grants, etc) both from internal sources and external sources. So failure to pay tax implies a vote to have little government provided goods and services. This actually is the real "If you wont pay, it will never show!". Your taxes determine what you will receive from government. In Zambia we have to be quick and say all things equal as we are used to seeing our money being used to enrich some leaders! Someone told me its the only way we know how taxes are used in Zambia is wrong ways.

So I believe its about time we started believing in the usefulness of the taxes we pay. But most importantly, leaders need to show us where the taxes we pay go to. That is the remedy. It does not go well when billions are being buried, with no sign of what was put up from the taxes paid!

So can we embark on this trip of Augmented Tax Incentive Economics!