Did Zambia buckle or resist IMF pressure on tax?

Cho is using his Zambian Economist blog to push the idea that the tax clarification from the Government last week was 1) a climbdown, and 2) a result of pressure from the IMF.

He quotes from the latest IMF Staff Assessessment, and claims that the text makes clear there has been a disagreement between the Government and IMF. It certainly does that, but I read it slightly differently from Cho. The text does tell us that the IMF wanted much more from Zambia,and didn't get it. But that does not answer the question of whether both windfall and profit taxes were ever advertised as operating simultaneously, and thus whether the clarification that they won't represents a climb-down. The IMF statement reads:

"The new fiscal regime for mining increases the average effective tax rate from a level that was significantly below that in other mining countries. When the international price of copper is at around the historical average, the windfall tax will not apply, and the average effective tax rate would be comparable to that in other countries. When the price of copper is well above the historical average, specifically, above $2.50 per pound, the windfall tax will come into effect and rise progressively with the price of copper. Staff cautioned that while progressivity is desirable, the marginal effective tax rate is very high at very high prices. Staff noted that it could be lowered by making the windfall tax, like royalties, deductible for the purpose of calculating taxable profits. Staff further suggested that, instead of the price-based windfall tax, a more appropriate way of capturing a larger share of the rents when prices are abnormally high would be through a progressive profit-based variable tax that would take into consideration the different cost structures across mines. The authorities argued, however, that they consider the windfall tax a more effective way to capture a sizable share of the rent when prices are exceptionally high and that current income tax provisions do not allow taxpayers to deduct other tax payments."

So what evidence have we got? Well, have a look back to this blog entry from May 22 and take the link through to the transcript of Equinox's teleconference : http://www.minewatchzambia.com/2008/05/six-fold-increase-in-revenues-as.html.

Now this is technical, but my reading of that discussion (pages 5, 8, 10 again) is that it was already understood that the two taxes would not apply simultaneously, but that Equinox still held out hopes about deductibility. Read it that way and the IMF note suggests the IMF tried to come in to support Equinox's interpretation but the authoritities refused.

I'll post this on Cho's site and see if someone can clarify.