LONDON – Zambia, Africa’s top copper producer, plans to tighten its grip on the government’s share of profits made at the country’s mines, boosting tax revenue and ensuring a more level playing field for Chinese and other investors.
Investors in miners operating in Zambia, which include Glencore, Indian miner Vedanta and Canadian-listed First Quantum, have fretted over possible increases in taxes under a government elected last year, against the backdrop of a surge of resource nationalism across Africa.
But Vice-President Guy Scott said there were no plans to change the tax code, and that making sure mining companies complied with the existing rules would boost income.
“We are very happy with the formula at the moment. We are not arguing about the taxation formula … That’s not where the concern is. The concern is compliance,” he said, speaking at an event hosted by Thomson Reuters on Friday.
“There are all these countries that are known as offshore banking or financial services centres. They get their money from somewhere, and we suspect some of it may be coming from Zambia,” said Scott, one of the highest-ranking white officials in sub-Saharan Africa.
Sticking to the current tax regime was a “firm promise”, he said. “We have backed off a windfall tax which at one stage was brought in … We have a higher royalty, and a progressive profits tax and the interest is not to change the formula but … to enforce compliance,” he said.
The new Zambian government is trying to juggle the competing priorities of unions demanding better pay for mineworkers with demands for more stable conditions from mining firms.
Scott said the government would look at under-reporting and possible transfer mispricing by mining companies, but said there was an issue with raising tax-collecting capacity.
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“You get between 45 and 50 percent of the profit in tax. If you get it, there is no problem,” he said in an interview later.
LEVEL PLAYING FIELD
Ensuring they collect their share of mining profits is a huge concern for resource-rich African countries like Zambia.
Many countries and pressure groups fear abuse of transfer pricing rules – governing how companies sell goods between subsidiaries – means they are losing billions of dollars to tax havens.
Transfer mispricing happens when a company’s unit in Zambia, for example, sells goods to a second unit at a cut-down price to ensure it records most profits in a low-tax jurisdiction.
Scott said Chinese miners, with whom relations have not always been smooth, would be treated like anyone else but would no longer get the favoured treatment he said they had enjoyed under the previous administration.
President Michael Sata has toned down his past accusations that Chinese companies, which have sunk $2 billion into Zambia to secure a share of its mineral wealth, had created slave labour conditions in Zambia with scant regard for safety.
“We don’t give them any leeway in terms of ‘You’re special, we want you, you don’t have to pay tax or you don’t have to comply with the labour laws’,” Scott said about Chinese firms.
“They have great interest in our natural resources … We are not frightened they are going to turn around and go. They are obviously not. So they need to be treated on an equal basis,” he said.
Scott said he expected the Zambian economy to grow by eight percent this year, after 6.6 percent growth in 2011, and inflation to stay around its current level of 6.5 percent. “If it increases a bit, I don’t see what the problem is,” he said.
Scott said his aim in coming to London was to convince investors that “we do speak your language” but he took aim at rating agency Fitch over its decision in March to revise Zambia’s outlook to negative.
“In some senses, this is a kind of Fitch correction visit … We get down-rated or up-rated according to maybe what some 25-year-old thinks is the case from various gossip that he’s heard in Zambia, and I’m here to correct it,” he said.
