It is reported that Vancouver listed and Australian based First Quantum Minerals owners of Kansanshi and Bwana Mkubwa mines in Zambia is optimistic that the government in the copper rich nation is likely to refund the money it paid in respect of the 2008 mining fiscal regime.
According to FQM’s report on operational and financial results for the 3 and 9 months ended September 30th 2010, the company has recognized a tax expense in accordance with applicable laws from time to time notwithstanding Development Agreements.
FQM, one of the companies that sought clarifications on the 2008 mining fiscal regime changes which included a windfall tax on copper sales revenue a new variable profit tax a concentrate export levy of 15% an increase in the royalty rate to 3% an increase in the income tax rate to 30% has been winning kudos in the government circles for being the only foreign mining firm paying ‘normal taxes.
The company said that following consultation with external legal counsel, the company FQM assessed there will be a high probability of recovery from the GRZ of payments made in respect of these taxes. The company, through its Zambian subsidiaries, is party to Development Agreements with GRZ for its existing operations which provide an express right to full and fair compensation for any loss, damages or costs incurred by the company by reason of the government's failure to comply with the tax stability guarantees set out in the Development Agreements and rights of international arbitration in the event of any dispute.
FQM, Kansanshi’s copper and gold mine’s parent company is also happy that the government last year issued a temporary exemption of the concentrate export levy of 15% to allow the company to export the copper in concentrate that cannot be treated locally due to the lack of smelter capacity within Zambia.
FQM stated that in addition and reflecting the enforceability of the Development Agreements, the company expected an ultimate repayment of taxes permitted under Development Agreements. Under the new President, the government reviewed these tax changes and proposed that the new windfall tax be removed, the deductibility of capital allowances be increased back to 100% in the period of expenditure and to allow hedging income be part of mining income for tax purposes.
From the highlights of the company’s reports, working capital movements during the Q3 of 2010 include an increase in accounts receivable of USD 86.4 million as a result of a significant increase in copper price, and a decrease in taxes payable due to payments of USD 115 million made by Kansanshi to the government.
Apart from Kansanshi, almost all the mines in the country have not been paying tax, claiming that they were not making any profits owing to huge investments made in the mines at the time of privatization.
Mr Highvie Hamududu chairperson of the parliamentary committee on estimates challenged the government to tell the nation when mines will graduate to tax paying positions. The mines could contribute 30% to the country’s revenue if they all graduated to a tax paying position 28% improvement from the sector’s current contribution of 2%.
Recently, Kansashi Mine graduated from its 8 year carryover tax losses and contributed most of the USD 1.6 billion revenue that had so far been collected from the mines, although it is now trying to claim a repayment of the money from the government.
Mr Hamududu said that the government should explain its difficulties in revenue generation. Otherwise, people will continue to complain. The government is not clear on mining taxation. They have argued that they removed windfall tax because windfall prices can go away and that taxation must be long term but they have not been clear, they must be clear on their positions.
He said that we might not agree with them but they should be clear. They should tell us when all the mines will come to tax position. For eight years, Kansanshi had a loss carryover but now they have graduated and from just that one mine we have managed to raise so much. Imagine if all the other mines were contributing, how much are we going to raise? We will generate as much as 30 per cent for the tax basket from the mines.”
Mr Hamududu said that the government had not given a knowledgeable argument to explain what was going on in the mines. It’s not that they don’t have an explanation, they do. The problem is that they are simply not making their argument clear when they talk about the new tax regime and the variable corporate tax which they claim is better than windfall tax.
The government has argued that people who are calling for the windfall tax have a poor grasp of taxation issues or basic economics, further claiming that the removal of the windfall tax will not lead to loss of government revenue as the variable tax still captures any windfall gain that may arise in the mining sector and that the latter takes into consideration the costs of production.
However, government said that negotiations with mining companies over the Development Agreements that were waived to pave way for windfall tax and other form of taxations under the Mines and Minerals Act 2008 have progressed and the talks with the mining companies are expected to be finalized by the end of the year.
Ms Chilufya Kapwepwe finance deputy minister told lawmakers in Lusaka on November 17 that progress has been made to find amicable solutions to the problem raised by the mining companies relating to Development Agreements and that talks have reached an advanced stage to find a lasting solution. The Development Agreements was a niche that attracted several mining companies especially foreign to venture into Zambia because of various incentives including tax rebates.
