The government accuses some multinational mining companies of evading taxes, they reply by threatening a suspension of the activities. The consequences of such a scenario are still unclear.
Six hundred million dollars account for 2,3% of Zambia’s GDP in 2013, less than half the growth that the economy of the country experienced in the same year (6,5% according to the World Bank). However, that comparatively small sum of money has caused a rift between the Zambian government and some top mining companies: its economic and social consequences are still unclear but potentially relevant.
The 600 million dollars are those that a number of multinationals – mainly involved in copper mining – say they must receive as Value Added Tax (VAT) refunds under the existing law. However, the Zambian government is withholding the money from those firms, which, it claims, are evading taxes or not providing the documents showing that they should not be forced to do so. The bone of contention are the actual gains of the companies, since for many years the Zambian taxation system has been profit-based. As a number of companies claimed that they were making losses, the government accused them of tax evasion. Such allegations also rely on figures such as those quoted by Kryticous Patrick Nshindano, economic project officer for the Zambian branch of the international NGO ActionAid. “Copper earnings in Zambia amount to 80% of the country’s foreign earnings but if you look at it in terms of revenue, it’s only 4% of that”, he points out.
This condition, according to the authorities in Lusaka, is the result of a mechanism that is at the same time simple and elaborate: “In a profit-based taxation system, you include all the costs until the final destination – Nshindano explains – therefore the more one shows that the copper is making a round trip, the more the cost increases, and the profit margin reduces. In the end, the country will not get much”. On the other hand, the ActionAid officer adds, everybody knows that “the final destination of Zambian copper is China” but the companies claim that they are not aware of it, due to the multiple buyers and to what is called ‘high seas trading’.
In many cases, nevertheless, both the government and some NGOs take as a fact that the Zambian subsidiaries of the multinationals were simply selling the minerals to the parent company or to other firms linked to it. To avoid such a behaviour, the government resorted to two extreme measures. The first was freezing the 600 million dollars and the second drafting and tabling in Parliament a new bill, which turns the profit-based taxation system into a so called ‘single-tier royalty-based system’, in which a given part of the product value must go to the state coffers. At the same times, these percentages were raised from the current 6% to 8% for underground mines and 20% for open pit mines. Unlike what happened in the past, both royalties are non-deductible.
This could have been the end of the matter, but this is where the mining companies reacted, and where Zambia and its citizens can lose slightly more than some hundred million dollars. The multinationals threatened to suspend their activities in the country, quoting financial straits as a reason, and therefore to close the mines leaving many Zambians without a job. The Anglo-Swiss company Glencore – which alone claimed to be owed $ 200 million by the government – was the first to turn threats into action, in early October 2014, by closing its zinc unit in Kabwe, Central Province: as a result, 170 people were left jobless. But those affected were many more: “Often, a single miner is the breadwinner for a whole family and the women only sell small objects or vegetables at the market”, sister Marcela Dettula of Caritas Kabwe explained in those days. The example of Glencore was followed by other firms, such as Barrick Gold, which threatened to close its Lumwana copper mine, in Northwestern Province. Had this happened, up to 12,000 jobs could have been lost. Despite ActionAid repeatedly blasting the multinationals’ behaviour as “arm-twisting” and a Catholic NGO, the Jesuit Centre for Theological Reflection (JCTR), accusing the mining companies of “bulldozing the country” by acting in this way, the government – in January, at the eve of an hardly fought presidential by-election – felt it had no choice but to negotiate with both the company executives and the miners’ unions, putting a possible revision of the new tax regime in balance.
Even if a solution is found, however, many are afraid that it will not last long. The fact that Zambia is going to the polls again in 2016 and the political relevance of that vote will be much higher than that of January is just one of many reasons. An entire model of development might as well be at stake. This was, for instance, what Kryticous Nshindano affirmed in December, when the fear for the possible closing of the Lumwana mine was widespread. “The fact that people will lose their jobs – he stated – is not the focus of the issue: you need to look at it from a long-term perspective”. To have people employed, he added “is different from benefiting from your resources: we have to look at what are the benefits for the majority of the people and not only for the few that have been employed. Jobs have to be sustainable”.
How far Zambia has been from this ideal up to now can be testified by the people of Kabwe, where Glencore operated its zinc unit. Once it was closed, the unemployed workers and their families still had to face the situation that had been created during the years. As an effect of mining, the city had become one of the most toxic places in Africa, because of the dispersal of lead, cadmium, copper and zinc in soil. “The western part of Kabwe – according to sister Marcela Dettula – was particularly polluted” by the byproducts of mining and the most affected people were also the weakest: the children.