UPND's Hakainde Hichilema
UPND’s Hakainde Hichilema

WEEKLY POLICY ISSUE

When the PF Government introduced the new mining tax regime in the 2015 national budget, we cautioned against the move. We warned them that the failure to properly consult industry could end up doing more harm than good if the end result was mine closures and job losses.

In developing tax administration reform for the mining sector the first consideration must always be what policy will ultimately deliver the greatest benefit to the Zambian people. In this case the greatest benefit will come from those policies that increase jobs and opportunities for Zambian businesses, as well as revenues collected by Government that can then be invested in education and healthcare.

With these objectives clearly in mind proper consultation is needed to develop effective policies that complement the Government’s broader approach to economic management. This was clearly lacking in the case of the rise in royalty rates announced in the 2015 budget and has since led to one major investor publicly stating their intention to withdraw. This is an investor who currently contributes US$45 million in revenues each year, and perhaps more importantly is responsible for hundreds and even thousands of employees who have their own dependents, as well as employees hired by subcontractors who service the mine. If the increased royalty rate leads to mine closure and delays of planned investment then it will actually have an impact of reducing total revenues and the number of jobs. A situation in which no one benefits.

Increasing royalty rates in this case was not a sensible approach and is negatively impacting investment prospects. This is because no two mines have the same cost structure of production even if they had the same level of production or revenues. If you take an example of two mines, both open cast, and they produce 10 metric tons a year. From a revenue perspective under the current regime both are taxed US$12,220 i.e. 20% of 10 metric tons at a price of US$6,110 a ton. However, Mine A spends US$2,340 to produce a ton of copper and Mine B spends US$4,670 to produce a ton. This means Mine A will make gross profit of US$25,480 and Mine B gross profit of US$2,180. While the Chamber of Mines issued an early warning of the likely result of this policy the Government chose to press on regardless and now finds itself in a panic once again.

In any case the focus on increasing royalty rates is misdirected as the problem we have faced with revenues to date are largely due to collection of what is owed. The solution is not to increase the tax but rather to ensure that all taxes owed are properly recorded and collected, and that further investment is also facilitated so that revenues and jobs can both increase, and not one at the expense of the other. What use is increasing the level of tax if we are not properly collecting the existing amount? Government can also help secure greater benefits for Zambians through supporting local businesses to participate in the industry and both drive and benefit from economic growth. Job creation and stimulation of local economies and enterprises are activities that can directly benefit the people. Their benefit should not be undervalued.

Unfortunately the PF have been too arrogant and rigid to listen to differing points of view, as they have also been with farmers, nurses and teachers who have all struggled to have their voices heard under a Government that shows little interest in consultation. As the PF Government has failed to establish a wider vision of what they are aiming for, policy development has too often been left to the personal whims of ministers and State House operatives, hence all the uncertainty and U-turns which stunt economic growth and delay the delivery of benefits to the Zambian people. President Lungu has already displayed a worrying reliance on issuing directives; making manoeuvres that would cause any serious investor to question the consistency of policies and reliability of a Government.

Here is our proposal and advice to Edgar Lungu and the PF government:

(i) Before you meddle with the taxation system make sure you are collecting what is owed under the current system
(ii) Consult widely and be transparent in developing policy, also ensuring that ministers and State House are in agreement over a policy before it is announced to avoid U-turns only a few weeks later
(iii) Remember that policy consistency is essential for industry growth and industry growth will naturally deliver greater revenues, as well as creating much needed jobs and opportunities for local businesses which directly benefit the Zambian people.

HAKAINDE HICHILEMA
UPND-president

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34 COMMENTS

  1. This man makes so much sense,it’s a pity we voted for Edgar Lungu. I’m yet to hear one intelligible utterance from Mr.Lungu

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    • It is only a matter of time, Zambian will realize that HH is the man to vote for.

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    • Mr Lungu said he had not visualised that he will ever lead a country. Comparing him to HH is not being fair to him.

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    • What a breath of fresh air. HH is giving solution to the collapsing PF government free of charge who have no clue how to collect the revenue yet wanting to increase the royalties. PF has really failed us. Come 2016, they will be no more.

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  2. Under pf sata your analysis mr hh was going to makd alot of sense but. HoHowever HE lungu is way aheard of your article and we have already seen how current pf move is of great benefit to zambians.
    Hard luck try another quess work.

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  3. Excellent president HH, some people say HH does not offer solutions here are the solutions. The question is will Lungu listen ? the answer is no ,why he thinks he knows it all using is ka degree in law which he collected from UNZA many years ago. Consultancy is key ,lets learn to reason as Zambians .Zambia is for as all.

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    • His advice has come way too late. EL already issued the directive to revise the tax rates after consultation with the mining industry. One thing you easily forget is that EL became president after the budget was presented to parliament. To every decisions made, reviews are done to ensure an institution attain its goals. That’s why even in other organisations quarterly meeting are done to review the operations. If the operations are off target you realign them which EL is doing. HH is not the solution to Zambian problems, the solutions are Zambians themselves. So don’t just complain and suggest names be part of the many solutions needed in Zambia.

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  4. CIPEC stands for Council of Copper Exporting Countries (French original text: Conseil International des Pays Exportateurs du Cuivre). CIPEC is to copper what OPEC is to oil/petroleum. Talking about development policies without global dimensions is an exercice in futility. There must be scope for inclusive negotiations between Government in neighboring countries and Mining Companies in which CIPEC also plays a positive role. A reasonable agreement can be rached if all parties are genuinely commited to the negotiation process.

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  5. Edgar IS A HEAD OF YOU THAT IS WHY HE IS ENGAGING ALL STAKE HOLDERS IN ORDER TO MEET ON COMMON GROUND- A win- win situation. Edgar was not in charge and at that time none of pretenders opposed the move to increase the TAX. In fact had there been no resistance from the Mining Houses none of you big mouths would have come up with these after thought suggestions.

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  6. Among other things that is killing our economy is PF’s inconsistencies. Today someone will give a policy direct, tomorrow someone will do the reversal. In all fairness, HH is the man of the moment come 2016

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  7. This is the problem with these turncoats.
    Yesterday HH said Zambians were not benefiting from the previous tax regime and told voters that if elected he would revise the regime to get more taxes. Chikwanda did this. But because mines have objected, HH has changed that we go back to the old mining regime which regime he condemned. Magande is on record of commending Chikwanda for the tax regime he had come up.
    HH do not think that Zambians are not following your utterances. They are doing so. So it is you who have policy inconsistencies. You are yet to give us a position on on your policies. So far all we have got from you are policy somersaults. This will not win you voters because it clear you are lying if not ignorant

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  8. This is the problem with these turncoats.
    Yesterday HH said Zambians were not benefiting from the previous tax regime and told voters that if elected he would revise the regime to get more taxes. Chikwanda did this. But because mines have objected, HH has changed that we go back to the old mining regime which regime he condemned. Magande is on record of commending Chikwanda for the tax regime he had come up.
    HH do not think that Zambians are not following your utterances. They are doing so. It is you who have policy inconsistencies. You are yet to give us a position on on your policies. So far all we have got from you are policy somersaults. This will not win you voters because it clear you are lying if not ignorant

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    • Read the article again! The main problem is failure to collect that which is owed, increase the taxes as much as you want but as long as tax avoidance loop holes are there nothing will be achieved. HH should have gone further and explained how he would ensure this.

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  9. Assuming HH has no leakage of the same premeditated plans from state House, then he is offering alternative leadership which is the role of the opposition. But we are yet to hear from Sunday Chanda criticizing from the other end. Give Zambians top priority.

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  10. Some sense in what he has said like;we need to account for all taxes before thinking of collecting new ones. Indeed one shoe fits all solutions do not work. However, Mr.HH needs to know that his MPs voted for it instead of asking or advising government on their reservations! Was it done as a trap to make PF look business unfriendly where UPND votes for a law and then goes to tell mining companies to resist it, giving alternatives thereafter?It is generally accepted that the previous tax system failed as only 2 companies were paying but then the new system seems to lack fairness as cost structures are different for each mine. So what is the real practical way to solve the problem when the World Bank and IMF are against individual tax systems for each mine? Negotiate for a win-win is Yes!

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  11. But I thought ECL already gave the directive that concerns raised by the mining companies should be addressed while at the same time protecting the interests of Zambians. Milupi was even quoted as having said that ECL should be impeached if he wanted to change the law on mining taxation. Where was HH? Probably in UK trying to discourage potential investors from investing in Zambia.
    HH you are way behind, all the issues raised in your article are already being addressed.

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  12. @DjR. Totally agree with you.

    Whichever party is in government introduces their agenda because they have the ability to introduce legislation, the party in opposition opposes the agenda but it doesn’t matter because they have no power to do anything. We then have a farce called an election, every now and again parties change sides. Now the party that was in opposition and opposes the agenda now imposes it. People will say “hold on a minute you said this in opposition and now you’re doing the opposite?” YES because it has the power to impose the agenda. The party that was imposing the agenda before and is now the opposition now opposes the agenda. Politics is a merry go round; this cycle needs to be broken because we as Zambian citizens come secondary to our government, at best!

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  13. If you want to see what’s on the horizon for Zambia, look at Greece today…their cock-up started with NOT COLLECTING TAXES PROPERLY !! Good point HH but I place all my bet on AGRICULTURE as a job-spinner and belly-full works harder and smarter than rabid-hungry !

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  14. students sponsored by the government abroad are really suffering.
    imagine this is the second year and the govt has not paid anything to the universities. we are a laughing stock and are like beggars because we have plead with the dean not to kick us out of lecture halls!
    Someone please help us before we become destitutes or abandon the courses and come back home!

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  15. @muntanga

    Govt sponsored you to go and learn and come back and help develop Zambia but you ‘ve turned the back against it and start hurling insults at the same govt. Don’t play politics with the ruling party because they pay you to be there.

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  16. This is the big one, “…Here is our proposal and advice to Edgar Lungu…” and then NO proposal! I have since come to know that HH is NOT a HOW guy. Too much hot air with no specific solution at all.

    Secondly, someone already pointed out that this same guy was promising to review the tax regime during his last campaigns, today he talks about merely “collecting what is owed..”

    “Mine A and Mine B”… Come on, how simplistic and shallow can one be!

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  17. Have the majority voters read this abracadabra . Nix ,they are the ones who put Presidents in State House!!

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  18. The inconsistency is actually by HH and UPND, they wait to hear what the mode is before issuing a statement. For me, Zambia will not develop with this democracy we have been forced to adopt by the west because any one can say any thing at any time. Its not long ago when everyone was singing the song of collection of more revenue(increase in tax) from mines because of tax avoidance and cheating by the mines by way of under declaring their production figures and profits, but the monent government does that through the royaty tax(to curb cheating) and the moment one mine just tried to scare us, every one has jumped on the same blaming government.Even Membe the one who was in the forefront and has even led to Chikwanda suing Chief Mpande due to his un reserch rantings thinking that Membe was

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  19. Cont– was with him .Nowadays Membe is now laughing at the government that there is policy inconsistence when he was the one who made more noise and joined by other Vuvuzelas like HH. In short we will not develop because every one is just supporting or saying things as long as it is embarasing to the governemnt and the same is favourable to the opposition.

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  20. On the issue of Mine A and Mine B. thats being Childish on the part of HH because you can not tax every one and expect them to have the same profits. if that was the case we dont we argue that dont tax workers who get K10,000 at the rate of 35% because others stay in Kabulonga while others stay in Chaisa hence they have different cost structures interms of rentals.It is the job of mine A and B to be innovative so as to operate within their means!

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  21. The Finance Minister post is crucial to the development of Zambia and Mr Chikwanda is not the not the right person to fill it. Look at the howler he made. He signed a statutory instrument allowing the exportation of unprocessed copper ore, what the late Sata called “soil”, which decision he reversed and had it not been for blood being thicker than water he should have been fired. Beneficiation is the in thing in Africa and even Mugabe talked about it on his state visit in South Africa. Look at the poor cocoa farmers living in squalor who sell their cocoa but whose cocoa products are sold several times over and have not even eaten chocolate in their lifetime. I somewhat feel that whatever mine taxation scheme Mr Chikwanda will come up with will be flawed. As for HH he is in campaign mode.

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  22. This issue of taxing the mines has got nothing to do with Chikwanda signing the SI and blood is thicker or whar ever what it is that we dont know what we want as Zambians because any Finance Minister we are going to have should be looking at how to collect more tax from the mines which Chikwanda tried to do but because of our various selfish motives, we have now tried to potray that government/chikwanda was wrong when he was right. Even the mines will not respect any government/finance minister because they know that the moment you just make a small threat, then they will reduce on taxes!

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  23. Yes. If they don’t pay tax, just reward them by cancelling all tax requirements……then act like beggars waiting for a bone In. The form of Employment. Great mind uh?

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  24. Unfortunately for UPND, even if people “realised” that they made a mistake voting for Edgar Lungu it does not follow that they will choose HH as their next President, in fact they will deliver a telling verdict against HH.

    Now HH is talking about humdreds or thousands of mining jobs, can he do some reserarch so that he is better informed. Lumwana has nowhere near these numbers even including contractors.

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