Zambia’s planned reinstatement of the windfall tax on profits generated by mining companies in the copper rich country has heightened debate among economic players.

Sources close to the industry said that meanwhile, Zambia might probably consider revising stakes in major mining operations to 35% from 15% to foster ownership and secure the units in the event of investors pulling out or closing when it goes under.

Under President Mr Levy Mwanawasa Zambia had in 2008 revised the mining and minerals Act to raise USD 415 million annually, ostensibly to improve the social sector through re investing resources in communities where mining activities take place.

After an uproar by foreign mining companies that the policy was an affront to the security of tenure on their investment, the government of Mr Rupiah Banda reneged on the policy a year later and revoked the decision resorting to variable taxes as relief instead.

Under President Mr Michael Sata, the call for windfall tax has been resuscitated as a government’s quest to increase economic growth through various fiscal and monetary policies. The government and various players argue, now that it is inevitable that the windfall tax be revisited as measure to generate more revenue and improve the livelihood of its 13 million populace.

Industrial sources said that the government might also consider increasing stakes in larger mining projects from 15% to about 35% though it is said not to be part of nationalization of the sector. There are also plans by the government to consider revising its stake in the mines especially the large scale ones so that it could have more say in their operations, although it's not really nationalization per se.

There was no immediate comment on the matter from government although Mr Wilbur Simuusa mines minister reiterated government’s desire to bring back the much dreaded windfall tax to accelerate economic growth and benefit the country through its mineral wealth.

Mr Simuusa said that while the government has initiated various variable taxes in the mining inclusive, it has been noted that the revenue income from the mines was insufficient to sustain the economy-hence the call for windfall tax again. Its just fair that we revisit the windfall tax so that we generate for revenue for the country but of course we will negotiate with the mining companies so that we all emerge in a win win situation.

Experts contend that the mining sector was contributing a paltry 2% of the Gross Domestic Product, yet it was the country’s lifeline, hence the need to recoup more revenue to grow the economy.

Mr Mathius Mphande, a lecturer in the school of mines at the University of Zambia and one of the advocates of windfall tax urges the government to consider increasing such taxes to about 13% from the present 3% of the windfall gain. Previously the windfall tax was pegged at 0.3% until recently when it was revised to three percent.

According to data, the windfall tax is a higher tax rate on profits that ensues from a sudden windfall gain to a particular company or industry. However, the Chamber of Mines, a body representing the interests of the foreign mining companies argues that calls to re introduce windfall tax in the mining sector would assist the sector collapse.

Mr Fred Bantubonse GM of Chamber of Mines contends that the reintroducing the windfall tax will not help Zambia’s economic growth but will instead suffocate operations of the mines. The windfall tax is not in the best interest of either Government or mining companies as the re introduction of the tax will shrink the mining industry and a threat on the security of tenure on investment in the sector.

The government to maintain variable taxes that were far less than the windfall tax Mr Bantubonse suggested that Zambia needs taxes that guarantee benefits for both Government and investors and not ones that choked the much needed investment. Taxing mining firms based on the profits could scare away investors who have invested heavily created direct and indirectly jobs for Zambians and are already paying variable tax.

He said that the variable income tax system ensures that income from all the profit above normal is collected but the system spares companies from being taxed on their normal revenue.

Mr Bantubonse said that there is a different windfall tax already in the country in the name of variable tax. The introduction of windfall tax may not help the country and that the problem is that a lot of people are under the impression that mines are not paying tax. For any tax to be acceptable it must allow investment to grow and business to be sustained.

He added that what Zambia needs is a win win situation and not a condition that would kill the industry. The ‘contentious’ windfall tax which was introduced in 2008 and later revised to variable income tax was constantly opposed under President Mr Rupiah Banda.

Various government officials including former finance minister Mr Situmbeko Musokotwane supported the waiver while cautioning against any attempts to recall the windfall tax to save the industry. It contended that recalling the windfall tax for mining companies would harbor economic destruction and that a lack of understanding between tax systems could also lead to the collapse of the economy.

Against the background Mr Bantubonse maintains that the government needed to guarantee foreign investors the security of tenure on investments that opt for short term benefits, arguing that Zambia had enough taxes from the mining sector to sustain the economy.

However, Mr Simuusa feels to the contrary and maintained that the Mr Sata’s government will revisit the issue of windfall tax with full consultation of stakeholders to have a win-win situation. This is not a unilateral decision, of course we are going to discuss with the mines and reach an amicable solution to the problem and no one will be disadvantaged.

At the time of privatization in the late 1990s, mining companies had signed mining development agreements that provided various incentives and tax rebates to warrant their rush into Zambia for the mineral wealth. When government suspecting that mining companies were generating more profit at the expense of developing people’s welfare through the social sector the windfall tax was brought before Parliament which lawmakers enacted into law in 2008 during the reign of Mr Mwanawasa.

While the windfall and the super taxes which have been embraced in among other countries, Australia and Tanzania, among others, the policy has remained a contentious issue in Zambia threatening the future of the mining sector.

Zambia is host to among other major foreign mining companies, Vedanta Resources, owners of Konkola Copper Mines, Glencore AG International and First Quantum Minerals, owners of Mopani Copper Mines, First Quantum Minerals owners of Kansanshi Copper Mines. Others include Jinchuan Mining Group, owners of Munali Copper Mines.

China’s Non Ferrous Metals Africa Corporation is another major player in Zambia, where it owns Chambishi copper smelter and underground mines as well as Luanshya Copper Mines with a total investment in excess of USD 1.8 billion. Many economic players at home and abroad await the final conclusion on how the government and the mining companies seek to resolve the windfall tax saga which threatens the future of the mining industry which has provided more than 20,000 jobs for local people in the aftermath of the financial global crisis of 2008.

(Filed by Mr Kapembwa Sinkamba SteelGuru Correspondent Zambia)