Support the new mining tax regime in Zambia

Mwape Musonda

By Mwape Musonda

Mining which has a history spanning for over ninety years in our country including the late 1960’s, when Zambia was the world’s third largest copper producer, after the US and the former Soviet Union has continued to be predominantly the main stay of our economy.

Currently Zambia is ranked as the second largest producer of copper in Africa after the Democratic Republic of Congo and the seventh largest producer in the world and our copper is regarded to be of top grade.

The International Council on Mining and Metals reported in 2013 that Zambia was one of the countries with the highest contributions to tax revenue from mining which stood at 32 percent of total tax revenue a dramatic increase from the 16 percent in 2008.

KCM plant

The report also disclosed that the mining sector accounts for 86 percent of our country’s Foreign Direct Investment and 80 percent of our exports.

Even the World Bank in their update of our country’s economic overview in April this year stated that Zambia has had a decade of rapid economic growth. A combination of prudent macroeconomic management, market liberalization policies, and steep increase in copper prices helped drive investments in the copper industry and related infrastructure to achieve an average annual growth of about 6.4% during the last decade.

The above impressive statistics have sadly however not translated into the uplifting of the living standards of the majority of Zambians. With some of the worst poverty statistics in Africa, Zambia

appears to have little to show for a century of mining as Sixty percent of our people are is still living below the poverty datum line with 42% considered to be in extreme poverty.

Other researchers like Sachs and Warner in 1995 and Collier and Goderis in 2008 went on to state that Zambia is not alone in this failure. They claimed there are many examples of countries rich in resources that are still mired in poverty. However, good policy and tax administration can produce good results. They cited economies of Botswana and Norway which are both dominated by natural resource production yet have made strong economic progress as examples.

Locally the statistics about our country’s economic progress have also been challenged by many stakeholders as just mere rhetoric because they have not transmitted the expected lifestyle improvement for Zambians. Many have criticized government for not providing a fair tax policy which has seen individuals pay high taxes as compared to businesses like mines.

Different stakeholders have continued to call on government to reintroduce windfall tax and to seal tax evasion loopholes which will see efficiency in the collection of taxes from mining companies and thus reduce the pressure on the individual tax payers.

Government in an effort to respond to these growing out cries proposed to change the mining tax regime in 2015 increasing the mineral royalty for underground mining and open cast mining from six to eight percent and six to twenty percent respectively.

Government further proposed a shift from the varying tax system to a standard rate of thirty percent corporate tax. The varying taxation system was what some specialist referred to as partly windfall for tax as mining companies whose profits were in excess of eight percent of their revenue were being subjected to the varying tax rate.

In defending the above proposals, government stated that it wanted increase both income and transparency in the mining sector so as to achieve more equitable distribution of the mineral wealth between Zambians and the mining companies. Government like many stakeholders contended that the mining companies were engaging in activities of tax avoidance which was making it almost impossible for it to collect any taxes and that the new tax regime would help curb the tax avoidance.

The mining sector both locally and internationally has been marred in activities of tax avoidance especially in developing countries like Zambia. The multinational mining companies we have in Zambia engageing activities such as transfer pricing, under declaration of production volumes, abuse of interest on debt payments and abusing hedging contracts in order to reduce their tax obligations.

Though the mining companies are threatening to pull out or retrench workers if government does not rescind its decision, I would like to appeal to all Zambians to stand with our government and oppose this manipulation so that government can collect maximum revenue which we desperately need in order to continue with the current developmental activities. God bless.
The author is a Humanism activist and ZICA Licentiate Student