Mining industry protest new tax measures

By Staff Reporter

 

The mines in Zambia have protested the proposed new tax measures announced by government in the 2019 budget, saying they will ‘break the back’ of the country’s already struggling economy.

Zambia Chamber of Mines president Nathan Chishimba following an emergency meeting held by the mining companies on Thursday said the new tax regime would hurt the mining industry and all those who rely on its success as the country’s outlook would be un-investable’.

“Having met as an industry, we are convinced that attracting investment is the only way to grow our economy, and growing our economy – and the base of taxpayers – is Zambia’s route to a prosperous future. To that end, we had a 10-point plan which we took to Government in July, in which we believed we could double the size of copper production, and add a billion dollars a year of fiscal revenue, over the next six years,” Chishimba said.

“Unfortunately, our plan has been ignored. Instead, the raft of measures introduced will have exactly the opposite effect. A number of operations will be pushed into loss-making positions and will likely have to scale back. Those already making losses will be pushed further into the red. And some of our members have had to immediately put on hold their expansion plans, which is the lifeblood of future production. Let us be clear, these higher tax rates will not result in more tax revenue.

Quite the opposite. As industry production shrinks through the impact, there will be less jobs, less taxes and as a result there will be less in the government’s bank account for many years to come.”

On September 27, 2018 finance minister Margaret Mwanakatwe announced changes to the mining tax regime, which included increase in mineral royalty rates by 1.5% points at all levels of the sliding scale.

She also announced the introduction of the fourth-tier rate at 10% on the sliding scale mineral royalty regime which would apply when copper price rose beyond US$7,500 per metric tonne and also make mineral royalty tax non-deductible for income tax purposes.

Mwanakatwe further announced an introduction of an import duty at the rate of 5 percent on copper and cobalt concentrates and an export duty on precious metals including gold, precious stones and gemstones at the rate of 15 percent.

She further announced the lifting of the suspension of the export duty on manganese ores and concentrates which was introduced in 2012 and instead increase the duty from 10 to 15 percent.

However, Chishimba said the mineral royalty tax rate increases by between 25% and 67% across the different price bands was particularly harmful to the industry, warning that Zambia would now, once again, be an international outlier in the severity of its regime.

“The Budget introduces a further feature to the MRT regime, which no other leading copper mining country applies. That is that MRT payments will no longer be deductible against Corporate Income Tax. This is in effect double taxation, and takes no account of the need for reinvestment in exploration and expansion,” he warned.

On the introduction of Sales tax, Chishimba said, “the Budget introduces the notion of a non-refundable Sales Tax, in replacement of VAT, without providing any detail whatsoever. Quite apart from the non-refundable aspect which will severely impact cost of mining, the financial uncertainty is so great that banks are now unwilling to provide financing to all miners, big and small, without further clarity”.

Chishimba warned that the 15% export duties that are intended to be applied to gold and gemstones will hit emerging and established operations alike and put legitimate operators, many of whom are Zambians, out of business.

He added that the introduction of an import duty on concentrates, combined with sales tax, would render imports uneconomic, and partially shutdown the Copperbelt’s smelters and refineries saying such an initiative flies in the face of the government’s beneficiation drive, and in one strike, destroys the potential for Zambia to become a Southern African value-addition hub.

He said the initiative to restrict tax credit for interest at 30% had the effect of stringently penalising any company that had borrowed funds to invest in operations.

“Not only does this dramatically increase the cost of borrowing for any business, but it completely disincentivizes the entrepreneurial risk taking necessary to start new businesses,” he warned.

“Some people will regard these increases as a great windfall for Zambia. But bear in mind that no operation will mine, explore or invest under those circumstances. The returns are simply not worth the risks inherent in mining. So, far from being a feast, this Budget will lead to famine”.

Chishimba claimed that many people did not fully appreciate the economic contribution the industry makes to Zambia.

“All large mines in Zambia have a multiplier effect of at least three – which means for every person working on the mines, there are at least three more jobs created in the wider economy just by the fact of the mines’ huge presence. We are talking about hundreds of thousands of household dependants,” he said.

He wondered what would happen with the suppliers to the mines.

“We are on the precipice of a deadly spiral damaging our country, our reputation, our communities and our people that could take many, many long years to repair.  We urge the government to open their door to us, to permit us to re-engage with them on these measures.”