There is a (misinformed) call by many for Windfall Tax to be re-introduced so that supposedly, Zambia benefits from the current high copper prices. A few points to note:
1. Critics point to the low contribution of the mines to total tax revenue (2.2%) but ignore the important secondary taxation that occurs. The mines have to spend money in the economy to operate. They buy electricity (VAT), petrol & diesel (fuel levy), equipment (import duty), they hire people (income tax) and acquire assets (property taxes), etc. To make a fair analysis, you have to add up all the taxes collected from suppliers and mine employees. All the figures increase with more investment from higher profits.
2. Any increased expenditure in the economy produces more wealth for others and grows the economy. As the Minister of Finance (Situmbeko Musokotwane) pointed out, when mining is doing well, many other industries grow (construction, transport, energy, etc). So why sacrifice long term economic growth just for short term gratification?
3. As mining profits increase, there will be a net effect of more money being kept in Zambian bank accounts (even if most of it is externalized). This means lower interest rates and therefore cheaper credit.
4. The mines spend millions of Dollars in community projects, schools, sport, health, etc which are the result of higher profits.
5. Increasing taxes eventually leads to more tax evasion and begins stifling new investments. Investors are attracted by lower taxes. If anything, we should be reducing taxes for the mines.
6. Nobody has a moral claim to the profits of another. The idea that the minerals are “ours” is based on flawed reasoning. Being a citizen of Zambia does not entitle you to the profits businesses make from Zambian resources. We all found the minerals already here and it took hard work by the colonialists to establish the mines after making agreements with local chiefs.
7. Mining companies deserve to be rewarded with higher profits for their risks (point made by Kalunga Shawa in another thread) .
8. It takes between 15 to 25 years for a mine to be established in Zambia and realise regular returns (exploration alone can take up to 10 years). For example, Lumwana copper ore was discovered in 1962. Critics ignore all the costs of the exploration and research prior to opening the mine.
9. Studies show that it takes at least 15 years of operation by a mine before reaping reasonable tax revenues. Most of the benefits are from investments and not taxes. If you begin over-taxing at the beginning (when most of the investment occurs), how can they ever recover their investments and how can any new mine open after that?
10. Putting more tax money into govt hands is to create more theft and corruption since the pie will be bigger. Money is better kept in private hands (argument made by Chanda Chisala).
11. Most calls for windfall tax are based on what some other countries are doing or about to do. You do not necessarily copy everything other countries do (Kalunga Shawa makes same argument).
REFERENCES & FURTHER READING
Mining Tax Debate; An Endless Tug of War. By Chamber of Mines
Fundanga blames low mining taxes on fiscal regime
Are the new mining taxes justified?