Post Zambia reported that increasing taxation and royalty rates now as proposed in the 2015 national budget is not a good idea and will not stop the looting of Zambia’s resources by mining companies.
Foil Vedanta said that the government would increase underground mining royalties to 8% from 6% as part of an effort to revamp mining industry’s tax system, and introduce a 30% corporate processing and smelting tax.
Another 30% tax would be applied to income earned from tolling, industry speak for an agreement to process another producers raw materials. Open pit mining operations in Zambia would now be subjected to a 20% mineral royalty as a final tax.
In a letter to finance minister Mr Alexander Chikwanda, Foil Vedanta stated that pursuing a high taxation policy without adequate evidence of corporate abuses, and detailed knowledge of how the copper trade was taking place could be risky.
Whilst it is true that mining companies should be contributing a vastly higher sum to the Zambian exchequer, increasing taxation and royalty rates at this stage, as proposed in the recent budget, is not necessarily a good idea.
The loot of Zambia’s resources has mainly been possible because of the secretive and opaque nature of mining companies’ operations: company annual reports (such as KCM’s) are not in the public domain, or even readily available to policy makers; mined and export volumes are not independently checked and ores such as cobalt and silver are often not declared by companies; the direction of exports are not independently checked resulting in the strange situation that the majority of Zambia’s copper appears to be sold to Switzerland.
Foil Vedanta stated that previous attempts to raise royalties and introduce windfall taxes had been met with fierce opposition from international institutions such as the IMF and the World Bank.
Foil Vedanta stated that recent audits of Konkola Copper Mines by Grant Thornton and the Zambian government began to reveal evidence of misdeclaring of profits, transfer mispricing and tax evasion, as well as failure to pay contractors and services including the Zambian electricity companies.
It said that without more of this vital information, informed policy decisions cannot be taken. Pursuing a high taxation policy without adequate evidence of corporate abuses and detailed knowledge of how the copper trade is taking place, could be risky for several reasons: Firstly, learning from Zambia’s history, attempts to raise royalties and introduce windfall taxes have been met with fierce opposition from international institutions such as the IMF, the World Bank and the banks and lenders, who have coerced former government’s into backing down.
It also stated that revenue generation by mining taxation might also be opposed by national and international development agencies and commentators because of perceived lack of transparency and accountability in the Zambian government.
Source – Post Zambia
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