Windfall taxes: A poisoned chalice? A study of the implication of re-introducing windfall taxes on foreign direct investment in the Zambian mining industry
Date
2013-02-27
Authors
Chitupila, Muleba Joseph
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Abstract
The mining industry is an essential and integral component of Zambia's economic development. This industry, heavily dependent on Foreign Direct Investment, is seen as a vital source in the provision of revenue to the Zambian government, revenue used to develop the country. In an attempt to fully maximize revenue collection from the mining industry the government has entered into Development Agreements. This is principally aimed at attracting Foreign Direct Investment in the mining industry and hence the growth of the industry. Development Agreements contain provisions which set the climate in which investments are made. These Agreements often provide concessions to investors. Some of the most common concessions are tax concessions as well stability periods during which time the government undertakes not to amend its laws to adversely affect the rights of the mining companies. Given the fact that metal prices, including copper are subject to international market forces, there are times when the copper prices will dramatically increase with investors in the mining industry making unusually high profits. When this occurs there is always a call for the people, to benefit from their countries natural resources. The sought after benefits come in the form of imposition of new taxes, commonly referred to as windfall taxes with the intention being to capture a share of the above normal profits being reaped by the mining companies. The imposition of the windfall taxes in most cases is undertaken unilaterally, breaching the Development Agreements and ignoring the stability periods. The windfall taxes further come at a cost of deterring further foreign direct investment into the mining industry which is heavily dependent on such Foreign Direct Investment for its growth and indeed survival. The study examines the implications on the amount of Foreign Direct Investment that would come into the mining industry in the event that windfall taxes are re-introduced. This will be taken in light of the previously signed Development Agreements and the previous introduction and subsequent cancellation of the windfall taxes. The study also analyses the consequences on the Zambian economy as a whole, in the event that windfall taxes are re¬introduced. It is the recommendation of the study that a balance must be struck between the re-introduction of the windfall taxes, the need to protect Zambia's standing as a good investment climate and the interests of all parties concerned in the mining industry and the nation as a whole.
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Mines and Mineral Resources-Taxation--Zambia , Investments Foreign (Taxation)--Zambia , Taxation (Windfall Tax)--Law and legislation-Zambia