Abolishing Windfall Tax in Zambia

The euphoria on the mining tax regimes that were introduced by the late Preseident Mwanawasa in 2008 is quickly over, like a flash in the pan. It is clear that the late president had a lot of pretensious followers in his party that were not happy with the introduction of new fiscal tax policy for the mining sector. In retrospect, some of them may have rubbed their hands with glee that he passing because his demise presented them the opportunity to make under-handed deals with mining companies to enrich themselves. The pace at which the then new tax regime was soon quickly suspended after President LPM's death and now finally abolished is disheartening.

It is preposterous for Zambia to continue on the current path of economic destruction. Like I have said before on other fora, Zambians need to speak out and demand the right to know how those deals and future deals are made with mining companies. In order to promote transparency, there is need for government to make all the agreements public so that the public can appraise themselves of the various conditionalities in the agreements. However, this is likely to face alot of opposition and resentment from government officials especially in scenarios where some or the majority of the deals may be questionable and largely lack integrity.

The removal of the well-intended windfall tax regime will significantly affect the only major opportunity of Zambia benefiting from its own natural resources and wealth through an effective tax collection policy. Revenues which were hitherto highly promising will now be driven down to the extent that we may begin to entertain ideas that mining conglomerates in Zambia own our wealth.  All the ongoing political manoeuvers should serve as warnings to all Zambians that the country is quickly slipping back to Chiluba's time when the economic plunder machine was let loose. 

ZESCO's 66% tariff hike: Recipe for Poverty Enhancement

ZESCO, a monopolistic power utility, has consistently asserted that it does not operate profitably owing to low tariffs to justify the tariffs hike. The power utility is slated to effect 66% tariff hike in electricity tariff with the blessings from the Bank Governor and ERB. The tariff will be introduced in spite of ZACCI and one UNZA Economics professor opposing the hike.

The Bank Governor should have known better that raising electricity tariffs would have implications on a fragile economy. The Governor’s argument is that raising tariffs would attract investments to the electricity sector. When the same thinking was applied to the mines and the new tax regime introduced in 2008, taxes accruing from windfall, corporate and other applicable taxes were expected to stimulate economic growth. Unfortunately, the Government recently reneged by suspending the new tax regime on mining. While the idea is to prevent the greedy mining companies from closing shop, it is also envisaged that lower tax regimes will act to stem capital flight as mining companies scale down their operations and in some cases cease operations completely. In the same vein, one would expect similar economic rationale to be applied in the case of ZESCO tariff hikes.

It’s common knowledge that the cost of electricity generation in Zambia is one of the lowest in the region but Zambians pay higher tariffs than those obtaining in neighbouring countries whose cost of generation is higher. This expected result, when inefficiencies and personal interests are factored into the tariff, is the high tariff. This is ridiculous! One wonders just what kind of economic model is applied to arrive at an exaggerated 66%. It's shameful that ZESCO is allowed to use tariff increases to covering up inefficiencies and schemes to award themselves unjustified salary increments and benefits.

It is indisputable that the 66% tariff hike will negatively impact the economy. First, even ordinary people know that the monstrous hike will alter their spending habits. Consumers at household level will be required to shell out 66% more than they have in the past. Spending will be hit enough to translate into possible reduction in total household expenditure on food. Further, the new tariff will cause electricity to become more expensive and less affordable, especially for the majority of households currently struggling to pay for electricity. Eventually, some consumers will be compelled to make hard choices: a meal on the table or electricity in their homes. ZESCO’s Managing Director has the audacity to ask Zambians not to construe the proposed tariff hike as a way to financially disadvantage them. Can he explain how 66% tariff hikes will ease the pain consumers currently feel?

Finally, the proposed tariff will affect business and commerce alike. As a consequence, upward price adjustments to offset the new tariff are inevitable. Such myopic and ill-conceived tariff hikes are more likely to exacerbate poverty than stimulate economic growth.