Chamber of mines clarify windfall tax

The Chamber of mines of Zambia, a consortium of foreign mining companies operating in the country are not opposed to the principal of the windfall tax but how it is applied in the industry, says its President, Emmanuel Mutati.

The consortium says while it supports the tax regime, mining companies they are uncomfortable with its application, the Zambia Daily Mail reported.

Mulenga----‘mining an expensive undertaking’
Mulenga—-‘mining an expensive undertaking’

During a presentation in Kitwe, 24 July at a media and civil society workshop the chamber organized Mutati said mines did not object when the then President Levy Mwanawasa’s administration introduced windfall tax.

Mutati, who is also Mopani Copper Mines Limited chairman and one of the Zambian mining engineers, said, however, that the mines are uncomfortable with windfall tax because Government was taxing mineral revenue without taking into account the cost of production.

“But when this tax was introduced, Government taxed the revenue without taking into account the cost. At that time the copper prices were good but ironically, the mining companies started making losses and that is what the mining companies are uncomfortable with,”  Mutati is cited as saying. Mines do not reject the principle of windfall tax but rather its application.

And Chamber chief executive officer Maureen Dlamini notes that abundant natural resources should not be a curse to Zambia but an opportunity for economic development adding that the mining sector is keen to establish rapport with various stakeholders to contribute to the country’s economic development.

She said the mining sector does not leave out beneficiaries or those that are part of the process and called for constructive dialogue and engagements among all stakeholders based on facts.

At the same meeting, Tranter Resources executive director Sixtus Mulenga urged Zambians to embrace mining investors because they are great risk-takers. Mulenga, who made a presentation on stages in mining development from exploration to mine closure, said mining is an expensive undertaking.

The windfall tax was introduced in the mining sector by then President, Levy Mwanawasa in 2008 to allow the country benefit revenue from the mineral resources of the country and was envisaged the state would realize an average US$415 million per annum. However, windfall tax is applicable in many countries but what is taxed is net revenue.

According to data, Windfall tax is a levy imposed on the mining industry by a government against certain industries when economic conditions allow those industries to experience above-average profits.

Windfall taxes are primarily levied on the companies in the targeted industry that have benefited the most from the economic windfall, most often commodity-based businesses. As with all tax initiatives instituted by governments, there is always a divide between those who are for and those who are against the tax.

The benefits of a windfall tax include proceeds being directly used by governments to bolster funding for social programs. However, those against windfall taxes claim that they reduce companies’ initiatives to seek out profits.

They also believe that profits should be reinvested to promote innovation that will in turn benefit society as a whole.  Windfall taxes will always be a contentious issue debated between the shareholders of profitable companies and the rest of society.

This issue came to a head in 2005, when oil and gas companies, such as Exxon Mobil who reported profits of US$36 billion for the year, experienced unusually large profits due to rising energy prices.

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