The 10 trillion mining sandal

Tue, 27 Nov 2012 15:33:08 +0000

The revelation by Deputy Minister of Finance that Zambia is losing close to K10trillion in revenue from the Mining industry through transfer pricing and other related crooked means of accounting makes very sad reading indeed.

If true the revelation deals a severe indictment on our mandarins who have failed in their gate keeping duties of ensuring that the country earns and retains all the benefits accruing from our heritage.

As far back as last year the problem of reporting the actual revenues from copper was being addressed by Government.

Even such institutions as  the World Bank admits that while  copper is responsible for 70 to 75 percent of export earnings,  the mining industry as a whole contributes about 10 percent of Zambia’s tax revenue.

According to the Bank, Zambia collects about $400 million a year in mining taxes, a pittance compared to copper exports of about $7 billion.

The disparity was blamed on companies that inflated labour costs, underestimating the price of copper to hide profits and avoid related taxes.

At the time the Government introduced measures that were intended to boost revenue by regular mineral and financial audits and improved enforcement of existing taxes.

 Other protagonists, especially in the opposition, however feel that the introduction of windfall taxes over and above the 30 percent tax on profit and a 3 percent tax on mineral royalties would place the Government in a better position to recoup the “stolen” profits.

It is the duty of Government to safeguard national resources and ensure that those who undertake sharp practices intended to deprive the country of resources are brought to book.

If the Government is indeed aware that mining companies a defrauding the country of value through transfer pricing through their offshore structures, why has nothing been done to save the country?

A few weeks ago the mining companies protested vehemently against accusations that they were undervaluing and underreporting mineral exports.

Konkola Copper Mines Chief Executive Officer Jeyakumar Janakaraj angrily responded that operators in the industry were highly experienced professionals not interested in cooking up figures.

He said a few other interesting things, pointing out that most of the operators were mere employees and not investors therefore their conduct had to be within the confines of the law or face individual consequences if they abrogated the law.

 The companies operating in Zambia, he explained were listed on the London Stock Exchange through their parent companies and that production figures were available to the authorities to scrutinize, therefore the companies would not be cheating.

The Mining industry instead blamed disparity in production figures on the lack of close collaboration between the Central Statistical Office, Bank of Zambia, the Zambia Revenue Authority and Ministry of Finance.

The Extractive Industry Transparency Initiative has also had a few thoughts on the matter calling for greater scrutiny.

In a sense therefore both sides to the argument have made their point and it is now necessary that a more practical approach is established to correct the situation or allay the fears held by Government. The gnawing suspicion is corrosive and will have the effect of undermining investor confidence in Zambia.

What the country requires are decisive measures and not continued accusations which will have little effect in resolving this problem.