By Engineer Victor Kunda Mwaba, MBA CSSBB

 

The position taken by the Zambia Chamber of Mines, regarding the new taxes proposed in Zambia’s 2019 national budget, is patently flawed. Mining policy changes are global, and they are just beginning. Zambia is not alone in this regard. It is not getting any easier in any mining jurisdiction, the world over. The mining industry’s capital allocation will obviously react to these new business threats, and a new equilibrium would be reached. To characterize the potential new equilibrium in the global mining business as Zambia being ‘un-investible’ is tantamount to economic treason.

Earlier this year (2018), The Democratic Republic of Congo (DRC) signed into law, mining policy changes that include a sliding scale on mineral royalties, higher taxes and removal of a 10 year stability period that made mines exempt to policy changes for a decade after passing said changes into law. This is similar in substance to what Zambia is planning to do. To postulate that recommended changes to Zambia’s tax code are not seen anywhere else in the world is professional dishonesty. Granted, the mechanics of taxes, royalties, ownership requirements and other value retention methods may differ slightly from country to country. The gist of the conversation is sustainable long term value maximization for host nations in the mineral resource sector. Does it have to be feasting for shareholders and famine for host communities? Is there a sustainable happy medium, somewhere?

One noteworthy event that occurred in the mining industry in September 2018 is what happened in Indonesia. Through their parastatal mining entity (PT Indonesia), the Indonesian government reached an agreement with Freeport McMoran and Rio Tinto for the host nation to take a controlling stake (51%) in the Grasberg mine joint venture. The controlling stake ownership will commence after Indonesia pays the two global miners $3.9 billion. Freeport, as you may know, is the number 2 copper producer in the world after the Chilean parastatal Codelco, and the Grasberg mine itself is the second largest producing copper mine in the world, after BHP’s Escondida mine in Chile. In return for the concession, Freeport’s license to mine in Indonesia will be extended to 2041. This event sets the stage for new relationships among mining multi nationals and host nations.

According to Informine.com, The Lower Chamber of Chile’s Parliament has begun studying a project that would set a 3% mining royalty for all companies operating in the country, which is the world’s top copper producer and the one with the largest known reserves of lithium. The idea is to have miners contributing part of their profits to the regions where they operate, Radio Universidad de Chile reported (in Spanish). The last time Chile increased its mining royalties was in 2010, following an 8.8 magnitude earthquake that left the government scrambling for additional funds to rebuild the devastated areas. At the time, mining taxes went from between 4 and 5 percent to 4 percent to 9 percent of sales on a sliding scale. You may note that this tax is a percent of sales, not profit. The royalty rose again early this year (2018) to between 5 to 14 percent. Closer to home in South Africa, the minister of mines Gwede Mantashe is finalizing a draft charter that increases black ownership of mines from 26% to 30% in 5 years. One third of said black ownership should be granted free of charge to communities and qualifying employees.

The four examples given above, DRC, South Africa, Chile and Indonesia are just few instances highlighting that changes to Zambia’s mining policy are in line with other mining jurisdictions. Also, Zambia’s new tax code is not as overreaching as other nations are going, to maximize the share of mineral resource profits retained in host nations. In as much as some capital may flee these proposed changes, there is potential for new capital to flow in from alternative sources. We shall not mention the Asian elephant in the room. Also, there is a new form of capital in business, that is more open to equitable profit sharing. This form of capital is called ‘Just Capital’, because it has some elements of social justice to it. Think of it as corporate social responsibility embedded inside of the business itself, and not a mosquito net donating side show. The Zambia Chamber of Mines is on the wrong side of history, in their analysis of the proposed changes in Zambia’s 2019 budget. No surprises on their position, considering their source of funding. It appears imminent that the Minister of Finance, Honourable Margaret Mwanakatwe, might cave in on the proposed changes to the tax code, and end up on the wrong side of the argument as well, when all is said and done. I hope to be proven wrong by the Honourable minister.

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27 COMMENTS

    • Any man who goes along with his educational titles has lo self esteem, no persons unless academic person writes their names and their titles afterwards.

      By Engineer Victor Kunda Mwaba, MBA CSSBB…. really/

      I could write Mushota Chilufya Chimfwembe, ACCA, Bsc, ACMA, MA, MBA, PhD but what does that mean, apart from showing how low self elsteem I have.

      A good magician doesnt use all their cards, they keep them in the pockets.

      Keep people guessing dont throw away all your educational qualifications as they mean nothing more than anything.

      My expectation is that people within my circles have degrees and Masters so I dont show off.

      I am Very humble.

      Do I have your attention now?

      Thanks

      BB2014,2016

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    • When intellectuals speak,the intellectually challenged insult them.Thats why you have people like Tayali,Antonio Mwanza ,Kambwili as your celebrities.Are those the people you want to tell us about Economic issues?

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    • “Bonehead Mushota” always claiming you have a PHD, my foot!!! Humble, my foot!!! Bonehead, YES!!!

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  1. A very succinct and timely article.

    Zambia has been shortchanged for too long.

    Zambians deserve a fair share of the resources and profit.

    Otherwise let resources remain underground and we will open when the world has exhausted the resources.

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  2. Well researched and written. Can you forward your article to the minister herself? She may be looking for such well reasoned support.

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  3. Very insightful article. As a person who grew up under ZCCM it is painful to see what has happened to our mines/mining towns and it always a breath of fresh air when someone elucidates global mining policy in a way that a lay person can understand. It’s unfortunate that we do not have a reading culture and prefer knee jerk responses to articles like this without commenting on the content. If Zambia’s mining policy is in line with other mining countries globally why did the chamber of mines say otherwise? It would be nice if they explained their position further.Zambians should be concerned about their natural resources and not leave it to outsiders to determine.

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  4. HH worshippers only comment when someone writes against the government . if government does good they are quiet. Where are you @sparka ??. They don’t want anything good to happen to Zambia they are praying day and nite to their god to ensure that PF and ECL fail

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    • Thats because you think in your simplistic mind that everyone who detests corrupt Lazy Lungu supports HH.

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  5. For all your troubles Victor, The Chamber of Mines isn’t a professional body but another opposition Party founded and run by the mining companies. Its manifesto is written by Glenco trading as Mopani Copper Mines. Just like the UPND, they don’t mean well for Zambia. When we say there’s a lot of corruption in Zambia we don’t mean that Edgar has bought indeke, what we mean is that Chishimba Kambwili uprooted kilometers of the railway line between Luanshya and Ndola when he wasn’t even a Minister but he got away with it. No sin is smaller, both HH and CK will face the same Lord on the day of judgment to explain how they got their wealth. All of us will account for our actions

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  6. Chile is where it’s in mining because the government put its foot down. Even war ravaged DRC is doing better than Zambia in benefiting from its ore resources.

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  7. Tax makes a lot of sense. It is necessary for the public to continue to enjoy public services. It is also necessary for Government to operate. I didn’t efficiently. because efficiency does not always need enormous tax. So, what is the basis for holding divergent views regarding mine taxation? The answer is simple. The level of tax must start from the global standard and then make necessary domestic adjustments. It is clear that the Chamber of Mines is concerned about capital flight, low production, low export, low revenue, low unemployment, etc. The mines can not repay Government loans. All sections of society, all sections of business are concerned by the loans. The contributions must be equitable. Consultations would go a long way. Forget about South Africa. Forget about Chile. Forget…

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  8. Victor Kunda Mwaba Jets President Nishimbi I remember when we were in competition in Jets fares we could wallop copper belt schools and mpelembe in particular where he let was called to do A levels and exceptionally performed and was sponsored to the US by the Consolidated copper Mines like others , he is very intelligent Mining Consultant settled well at silica in the US He is a colleague
    However Zambian mining has not contributed fairly to the Zambian National Resources in the desired revenues to GDP Chile Mines have at least reflected the benefits of these resources in contributing to National Revenues The Mining in Chile contributed 14.9% GDP over the last 10…

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  9. years, with more than 20% GDP contribution in the year 2006 and 2007 annualized

    Yes there has been concern on policy for Zambia and Democratic Republic of Congo (DRC) But contribution to national reserves has not been above 8% of GDP like the case of Chile It’s also understood that though its useful to quantify the attractiveness of the country in mining Investments based on policy factors such as regulatory, fiscal reshimes,quality of infrastructure plus others ,Policy Perception Index alone does not recognize the fact that investment decisions are often sizably based on the pure mineral potential of the particular country In this case Zambia ranks fairly amongst the Africa countries with Kenya Mozambique…

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  10. Ethiopia Tanzania and Ivory coast leading the pact
    The transition from mining to manufacturing and value additions may be very far off and we may need to make decisions in the shorterm to long term and beneficial revenues from the mines and resources often with little value additions The issue of the Congo has mainly been due to the social economic and land administration

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  11. There the Gov and mining community sat and indaba the issues and its been mining even towards the December elections

    Though we would want to be the top most preferred mining country like Finland and not the worst like juju in Argentine those “Investment Attractiveness Index” should mirror also the Contribution to the GDP in Real Revenues for Zambia

    With due respect to the comments from the Distinguished and respected colleague Victor Kaunda Mwaba We can go on to show why this policy by DUDU

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  12. Thank you Sir for your wonderful contribution.. Very well articulated for a common man to follow and understand.
    More of this line of thought is needed.

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  13. Mushota i agree!!!!we owned the mine so that grz has 100% revenues – but the rest is history: NOW other people have revived the mines at great cost and alot of hard work, we want the profits, to point of straggling the chicken that lays the golden egg. the result may be low profits and zero revenues to grz. listen objectively to advice.
    i submit that they are other smart options that grz can resort too. in order to maximize returns. we need smart brains ( and zambia is not short on skills) to get a correct position of more revenues

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  14. Great Patriot.Excellent article Victor.Thanks for joining in my crusade to educate our people and leaders.I plead to government not to cave in to demands by mines.Let those who want to leave to go.We have been exploited enough through vat,electricity subsidies,excess forex retetention and tax avoidance

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  15. The VAT/Sales Tax Threshold

    Even in the OECD countries will normally set thresholds for VAT/Sales taxes This means that a business’s sales of taxable items must reach a certain value before it is required to register and pay a VAT or sales tax on its products

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  16. Best thing is to make Zamban take charge of their heritage in minerals, forests, and waters..this requires serious state run education across the board. This is achievable in order to realize a full potential of the country instead of the current trash way of running national affairs with those in government running around with nothing on their minds other than kickbacks and rotten deals coated as developing this beautiful country. Of course Lungu MUST GO right away.

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