Zambian tax collection: an all too common tale
Dr Mathias Mpande, a Zambian university scholar and a former deputy mines minister, on the complexities of transfer pricing and mining taxation:
World leaders are discussing the Millennium Development Goals in New York. There is an awful lot of focus on aid levels. Which is OK. There will be, we hope, some discussion of the importance of tax. But almost certainly not enough, given that - as the latest African Economic Outlook notes:
"On average in the region, 441 USD of taxes are collected per person per year while 41 USD of aid is received per person per year. In other words, if Africa were a single country, collected taxes represent more than ten times the amount of aid the region receives."
It's good to see people like Dr. Mpande getting the focus right.
He said that Zambia Revenue Authority will not recover the ZMK 8.3 billion mining royalties’ deficit by the end of the year because it has no competent staff to handle the mines. . . . the mining companies as far as am concerned (sic) are transfer pricing, there is also rampant tax evasion and ZRA are not up to the mark to audit the mining companies books so that they can have a realistic assessment of what is due.And so Zambia has to go, cap in hand, to donors. And that's not all.
That is a scandal as far as [I] am concerned, the Zambian government is not doing the country a service, we are not getting what is due from our resources and that I have said on several occasions and that is true and it is increasingly getting worse."
"The Zambian mining industry was the only industry that was large enough for the country to get revenue that would meaningfully contribute to tangible economic growth and development."It is a general problem for developing countries, which reply to an unusual degree on taxing corporations - because it's so hard to tax large numbers of often very poor people.
World leaders are discussing the Millennium Development Goals in New York. There is an awful lot of focus on aid levels. Which is OK. There will be, we hope, some discussion of the importance of tax. But almost certainly not enough, given that - as the latest African Economic Outlook notes:
"On average in the region, 441 USD of taxes are collected per person per year while 41 USD of aid is received per person per year. In other words, if Africa were a single country, collected taxes represent more than ten times the amount of aid the region receives."
It's good to see people like Dr. Mpande getting the focus right.
posted by TJN at 6:35 am
5 Comments:
Another example of a bad tax system. If the mining companies had to pay a rent for their mining rights there would be no need to audit their books and the government would get a steady reliable stream of income at no effort. Hopefully it would be spent wisely but that is another question for another time.
What idiots do these governments get their advice from?
Henry,
Many of the oil contracts, for example, effectively do just that. At least for Angola and Nigeria, production sharing agreements, after taking out (small) royalties and allowing for costs, tend to give the lion's share of the rents to the governments. It's a vastly complex area to tax rents in this sector - there are so many imponderables - costs of E+P, oil prices, risk factors on contract signature - that audits, however flawed, are a fact of life. No system of "simply taxing rents" could possibly solve this in any satisfactory way.
It is complex but if the companies take the risks then government gets a fixed base income. A sort of franchise model.
There are some quite good models around but one would need to know the details. North Sea Oil is one. Norwegian oil is another. There was the UK auction of 3G radio spectrum which was another - government got the the money and that was the end of the matter.
The commercial sector took the risk and consequent rewards. This seems to be a sensible way of doing things. Rentals can be leases for a term of years with revision clauses. In principle it is no different from renting a shop on the high street. Circumstances can change, of course.
This is wildly, hopelessly unrealistic. Your comments reflect absolutely no sense of the political realities at play here. This blogger has spent quite a bit of his life talking to African oil-rich governments and the companies operating there, mostly in Angola, and the notion that any kind of notion that "government gets a fixed base income. A sort of franchise model." is, quite frankly, insane. At a particular oil price, this might work. The moment the oil price deviates by a dollar or two from the level, then either the government, or the companies, will start screaming. To the extent that this isn't "fixed" but follows the oil price, then you are describing exactly what often does happen. Do you know about the skewing of perceptions of "risk and rewards" in auction by multinationals in such countries, and the resulting anger when the resulting paltry revenues come trickling in to developing countries? "Revision clauses?" Now there is a route to trench warfare, if ever there was one. In reality it is very different from renting a shop on the high street. But you are right: it is complex.
All you are saying is that rents should be tied to oil prices, which is very reasonable. This could be done even on a daily basis if necessary. It is also, of course, possible to measure the amount of oil brought to the surface on a continuous basis.
The general principle must surely be that these resource rents should be collected as far upstream as possible, before the companies have had an opportunity to cook their books, as simply as possible, and with minimum need for government official to inspect accounts.
From your description of what has been going on, it sounds as if that principle has not been followed.
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