THE Jesuit Centre for Theological Reflection (JCTR) says it is disheartened by the manner in which the Government has been coaxed to abandon a progressive tax system in favor of one that has inherent weaknesses such as transfer pricing, hedging and trading through “shell” companies.
In statement released in Lusaka, the JCTR said, “The threat of job losses on account occasioning from placing the mines under care and maintenance or completely pulling out of Zambia has caused policy formulators into rescinding a duly approved tax law.”
“It is apparent that the profit based system was vulnerable to tax planning schemes at reducing taxable profits. There is need for the government to come up with a comprehensive mining sector tax regime as opposed to piece-meal amendments.”
The JCTR said the return to a corporate income tax pegged at 30 percent and corporate income tax on income earned from mining operations processing at 35 percent and a flat mineral Royalty Tax of 9 Percent for both underground, open-pit operations has serious implications on the 2015 fiscus.
“The immediate effect of course is an increase in the primary budget deficit with possible rationing of expenditure and possible soaring public debt. Effectively the reversal of the mineral royalty tax borders on shifting the tax burden to the poor,” said the statement.
The statement further stated that, “While it is clear that government has set the effective date of the new mining fiscal regime to 1 July 2015, government has not clarified how to tackle retroactive mining tax arrears from January to June 30th 2015. Further, government should categorically inform the public on measures that will be undertaken to address the anticipated revenue loss from the tax adjustments
Be that as it may, in order to address the obvious downside risks that maybe caused by the revision of the 2015 mining fiscal regime, we recommend that government must undertake the revision complete and in tandem with other probable revenue measures to thwart the severity of distortions in the allocative and distribution functions of the national budget. We have in mind revenue mop-up from property taxes. Further, we appeal for tightening of resource slippage in procurement and cutting-back of any unplanned politically expedient expenditure.
With the revision of the 2015 mining fiscal regime by Cabinet on account of the fact that it did not meet the stabilization function and effectively that it was not rooted in foward realism, it is apparent that the distribution and allocative functions of the 2015 budget will also require subsequent revision. Accordingly, we advise that the piece meal -adjustments to the 2015 fiscal budget will have short to medium term consequences on key expenditure lines. Therefore, we appeal to policy formulators and implementers and Budget Officials alike that social sector allocations to health, education, water and sanitation must be ring fenced against any downward adjustments. That primary expenditure lines to the social sectors must in no way be tinkered with. As government considers how to fill the gigantic void that has been created by the revision to the mining tax regime, the message being communicated is that sustainable fiscal policy has been eroded by this one government decision alone. This has undermined the sustaining of the positive growth trajectory that we have recorded over the past few years.
In conclusion, we wish to advise government that the revision of the 2015 mining fiscal regime, on account of the gravity and sensitivity of the revenue line, must be implemented simultaneously with other requisite policy recommendations and adjustments to ensure that the 2015 fiscal budget merits international best practice and retains public finance integrity.
We recommend that the revision be considered as part and parcel of the mid-year budget review process for purposes of the budget being comprehensive and all-encompassing of government revenue and expenditure. Therefore, it is important to assess trade-offs between different policy options in the overall budget as well as economic assumptions underlying the second half of the year and an updated forecast of the 2015 budget outcome.”