Mike Theo Hambulo
I am afraid to say that Dr. Situmbeko Musokotwane is back and is back to rob the country of its desired benefits from its endowed natural resources.
In 2008, Musokotwane abolished the windfall tax, and that’s the last time Zambia genuinely benefited from the mining sector.
He is back to hand back the mines to unknown investors and he is laying ground for a tax regime that benefits investors and robs the country of revenue.
MINERAL ROYALTY TAX
Mineral Royalty Tax is not a fee it’s a tax.
Currently it’s paid as final tax by both loss making and profit declaring mining companies as a final tax.
So it is net tax income to the Zambian people. In the last 25 years only Kansanshi and Kalumbila have been declaring profit and paying both mineral royalty and company income tax.
If you look at the ownership of the two companies you can safely say one mining company in Zambia was paying company income tax – FQM in the last 25 years.
With the careless almost foolish tax concessions the government has given to mining companies at a time when the price of metals is very high, at the time government on behalf of the people should have maxmised benefits from the industry, means that even FQM company income tax will disappear including Lumwana and Lubambe who were about to be profitable because mineral royalty will now be a deductible cost from profits before tax.
Here is what the Zambian people must know.
First Quantum Mining pledged that if government made mineral royalty tax deductible, they will in return invest USD2 billion in Zambia and increase production to not less than two million tonnes per year. Does that sound familiar?
The Minister of Finance Dr. Situmbeko Musokotwane is repeating recycled ideas he practiced when he was finance minister under Rupiah Banda.
He abolished windfall tax and made mineral royalty tax deductible.
We must be quick to remind Zambians that Musokotwane borrowed 25% of the current Zambian debt and gave careless tax concessions to various companies, a method he has repeated.
With the new mining policy Musokotwane is pushing, there will be two outcomes as follows:
- Mine Houses will benefit from these concessions and make super profits and externalise the money. As we have seen in the past with Vedanta who repeatedly pledged $1.5billion in ten years, FQM and others will not bring the desired investment. Because there is no law that will hold them accountable for the promise of the USD2 billion investment and Musokotwane will be beaten pants down and the copper and other minerals so mined and taken out will be gone forever;
- In the unlikely event that decency ‘ne nsoni’ or Ubuntu prevails, FQM will use the same extra money saved from tax concessions after exporting Zambian minerals to reinvest in Zambia. So Zambians will capitalize FQM through forgone tax revenue. What a shame!
It is on record that only FQM and only FQM had a laid a complaint regarding double taxation with non- deductible mineral royalty tax and Company Income Tax. Why haven’t the technocrats in government address this specific issue instead of mutilating the solid revenue base from the industry?
One option was to reduce Income Tax to 5% from 35% or even reduce to 0% and compute MRT at a level that protects Zambians.
Why do mining companies love income tax? Simple,it facilitates transfer pricing and exaggeration of costs to declare lower taxable income.
Why do mining houses dislike Mineral royalty tax? It’s based on extracted minerals and easy to administer by ZRA but difficult to cheat.
Remember this please, countries with deductible MRT and lower taxes in this industry have higher stakes or even controlling shares in private mining companies.
So they collect lower taxes and get dividends.
In Zambia some mining companies are 100 percent private. Why such concessions?
Please, let’s fight Musokotwane’s penchant for pro investor interests and policies that permanently rob the country of its revenue from its natural resources.