Since 2011 when they ascended to power, the PF Government has changed the tax policy not less than three times.
In the recent turn of events, Information Minister Chishimba Kambwili announced in a press statement that mineral royalty on copper would be varied based on copper prices, a flat mineral royalty of 5% and 6% would be imposed on copper and precious metals respectively and 10% export duty on copper ores and concentrates will be suspended.
In 2012, mineral royalty was increased from 3% to 6%, to 9% in 2013 and 20% in 2014 which was subsequently reversed within the financial year to 9%.
Now in 2016, Government has again changed the mining tax barely two months into the new fiscal year.
In a statement, JCTR wondered why government did not introduce these new measures before the budget was enacted at the beginning of the year.
It said the challenges the mining companies are facing which government is using as a reason to reduce mining tax existed at the time the 2016 budget was being formulated and so the changes must have been made then.
“Government needs to resist the pressure from mining companies who have the tendency of arm twisting government. Government must also realize that this kind of policy shifts in the mining tax regime does not inspire confidence in what the government is doing and may scare away prospective investors,” it said.
It added that policy consistency and predictability is cardinal to deepening investor confidence and growing not only the mining sector but other emerging sectors as it signals government’s stance on various policy issues.
“Furthermore, the upward and subsequent reversal of mining tax is contrary to the government’s position of expanding the tax base. All government policy documents including the Revised-Sixth National Development Plan (R-SNDP) and the Vision 2030 are premised on broadening the tax base but government actions are contrary to this position. The R-SNDP further states that Government in the implementation period (2013-2016) intends to substantially reduce tax exemptions as part of its fiscal policy.”
It added, “With so high appetite to spend and many developing challenges, the PF government needs to mobilize as much domestic resources as possible. Unfortunately, the mining tax policy shifts are working to erode the tax based and undermine efforts to enhance domestic resource mobilization and consequently government has resorted to external borrowing.”
It stated that in the same press statement where Mt Kambwili announced reduction of mining taxation, he announced new debt acquired from the African Development Bank and China Development Bank amounting to over US$230 million for various projects.
JCTR said repaying these debts will mean government increasing tax in future to be able to finance subsequent budgets.
“Zambia needs a fair and predictable tax system that will ensure fair distribution of mining revenues between investors and Zambian people and also promote investment.”