The phoney war over Zambia's new tax regime rumbles on with both Government and companies using a 'Euromoney Investment Conference' in Lusaka and the 'Copperbelt Show' to button-hole journalists and rehearse their favourite arguments. The discussion is getting heavy coverage in international business media, particularly in relation to claims that the new regime has led to the pull-out of investment in major projects. The claim is of course difficult to substantiate since we can't know what woud have happened without the taxes. ZCCM-IH has responded that foreign companies were penalised because they failed to pay dividends through ZCCM-IH's minority shareholdings, and that if they now feel the regime is insufficiently profitable, ZCCM-IH will happily buy them out. The companies appear to have won i) 'clarification' on the operation of profit and windfall taxes, which will not both operate at the same time as each other. I am not convinced the legislation ever made it appear that they would. This is spelled out nonetheless in a letter of intent to the IMF. ii) A concession from the Government on VAT on imported mining equipment for new projects. There are various loopholes associated with such schemes that were widely understood to be abused under the previous regime, and the state will have to be careful they aren't re-opening them.
While all but two companies have accepted the nex tax regime and started paying at the prescribed rates, two companies: First Quantum and Equinox continue to hold out for some sort of special concessions. If they really want to prove their rebel credentials, this month they will have to make two choices: to shut up and get on with life under the new regime, paying the ZRA new profit taxes, or to refuse and to take some sort of international legal action.
Typical of the coverage is Reuters (there are versions of the same stories on Dow Jones and Bloomberg)
which reports comments from Chisanga Chekwe-Puta, the Zambia country manager for Canadian miner First Quantum Minerals FQ.TO, who claims that Mopani Copper Mines (MCM) in which First Quantum has a 16 percent stake, had suspended construction of a mining shaft after authorities introduced new taxes. "Mopani has suspended construction of another shaft which could have employed 2,000 people." Chekwe-Puta also claimed investments at First Quantum's Bwana Mkubwa's copper processing facility unit and a new project at Kashime mine had been suspended.
Reuters also report Joseph Chikolwa, the chief executive officer of the state-run ZCCM-IH, who defended the new taxes, saying the copper mines had not been paying their dividends to the government before the new taxes were introduced. "We never received any dividends from the mines . . . so when the copper price is so high, why should you be complaining? We are not trying to chase away investors but we are trying to share the cake," Chikolwa said.
The Post report that Chikolwa says ZCCM-IH will be more than willing to buy shares from companies that want to pull out of Zambia because of the new tax regime: "I am likening the mining companies to farmers who complain when it rains and again complain when it doesn't rain. At the moment, no one expects the mining companies to pack up and go because they have made investments of up to US $3 billion in the sector. The business model that was developed for the mining sector did not work. The mining sector has not paid any dividend to the government through ZCCM-IH, so government's decision to revise mining taxes was in the best interest of Zambians."
The Daily Mail reports that Government has suspended Value Added Tax (VAT) on equipment imported by mining companies that have not yet started production. Minister of Finance and National Planning, Ng'andu Magande told the Daily Mail. "We have deferred the payment of VAT on new equipment until these mines start making money."
Xinhua reports that the Zambian government has assured that the mining windfall tax and the variable profit tax will not apply at the same time in order to preserve the nation's attractiveness in the sector. Minister of Finance and National Planning Ng'andu Magande made the promise in a letter of intent to the International Monetary Fund (IMF) managing director Dominique Strauss-Kahn: "in implementing the new fiscal regime, the government will be mindful of the need to preserve Zambia's attractiveness for investment in mining. To this end, the windfall tax and the variable profit tax will not apply at the same time."
The Post reports that Mines and minerals development deputy minister in charge of Large-scale operations Maxwell Mwale has advised the companies, "There should be no economic sabotage by mining companies because of the new tax that government has put in place for the benefit of citizens," Mwale said. "It is not important for mining companies to be guided by greed. All the government wants is to get a fair return on its mineral resources as prices of copper remain high on the international market. We don't expect arm twisting tactics from the mines."
In a story in The Post, the mine companies encourage some sort of 'race to the bottom', suggesting that DRC now presents a more favourable investment location than Zambia, and that taxes and regulation should be reduced to bring in more investment. No doubt they are telling the Congolese the same story.
In the meantime, an old story gets regurgitated: the Daily Mail reports that quarterly meetings between the state and the Chamber of Mines will begin soon. The Chamber has recently elected a new president, Nathan Chishimba, who is sending out warm words about partnership between the state and private sector, and co-operation to improve the listing of mine firms on the local stock market. Mr Chishimba said the establishment of an index market for the mining companies could only be achieved when a good number of companies were listed on the Lusaka Stock Exchange (LuSE). He said there were not enough mining companies that were listed on LuSE to determine indexing of the sector. However, he was optimistic that in future, indexing of mining or any other sector on LuSE would be achieved. “Lets not look at the mining companies alone as being the major players on LuSE, there are other companies in agriculture, finance and other sectors that are blue chip companies for an index market,” he said. Mr Chishimba said listing mining companies on the LuSE was dependent on the shareholders that held shares in various companies on the international stock exchanges.
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