Debate on mining taxation under SI 89 continues

As Zambia seeks to raise enough revenue to meet various financial obligations including infrastructure development, renowned economic analysts contend the policy deprives the treasury of resources.

The Statutory Instrument (SI) number 89, which demands Government slapping a 10 percent export levy on copper concentrates by mining companies to allow maximising tax revenue to the treasury, has again come under debate with some commending that it be scrapped.

Recently, President Michael Sata directed that the policy, which suspended 10 per cent export duty on copper ores and concentrates for one year, be reversed.

On 21 March this year, Finance minister Alexander Chikwanda waived statutory instruments 33 and 55 which barred economic players from transacting in currencies other than the local one, the Kwacha and the SI 55 which demanded that mining companies should work with various bodies to monitor and regulate their export programmes.

However, the delays to review the SI 89 has raised eyebrows of some economic analysts with Lusaka-based business and economic analyst, Professor Oliver Saasa advising the Government to act quickly and revoke the policy as it was detrimental to the growth of the economy.

Saasa argued that it was unfair for the Government to treat mining companies as ‘homogenous groups’ with regard to their tax obligation and community social responsibility.

He urged Government to consider revoking Statutory Instrument (SI) number 89, and allow more tax revenue to be collected to beef up the treasury.

Government risks missing a clear opportunity to draw a distinction between firms which are compliant with meeting their tax obligation if it lumps them together and treat them as homogenous groups, he said in a case study report he undertook recently entitiled. `Economic Impact of the Trident Project’ done in March this year.

Saasa urged the Government to stop using averages in reporting the mining companies’ tax payments to avoid missing out on potential opportunities that can be generated from listed companies on the capital market and those who are operating outside the Lusaka Stock Exchange (LuSE) noting:
“There is a risk to miss the opportunity to draw a clear distinction between firms such as Kansanshi Mines that are publicly listed on the Lusaka Stock Exchange (LuSE) and that are more compliant with regard to meeting both their tax obligations and community social responsibility commitments,”

Mining companies meeting their tax obligations and community social responsibility commitment should be separated from those which are allegedly not fully complying with Government expectations and that a solution should be found to address the seeming stand-off between First Quantum Minerals’ (FQM) Trident Project in North-Western Province and Government authorities, Saasa argued.

He cited the Zambia Environment Management Agency (ZEMA)’s delays in approving the resettlement plan needed by the Trident Project to proceed with some of its major development as a cost to the mining company, FQM time and resources to make it proceed with its projects earmarked for Solwezi, where it operates.
He called upon the Government as a matter of urgency, address the challenges posed by the country’s lack of a single source of definitive copper production data and that this would help address the often heard of complaints that the mining companies are under-reporting on both production and export figures.

“More importantly, without accurate statistics on mining production levels, it has been difficult to project accurately revenue from the mining sector, let alone to efficiently collect it by way of taxes,”

Saasa further asked the Government to aim at maximising tax revenue to the treasury over the longer-term than focusing at shorter-term gains. This can be done by encouraging mining investments that support long-term profitability and the acquisition of advanced and appropriate technology.

The strategy, he added calls for the adoption of tax systems that are neutral and progressive in a manner that motivates corporate innovation and profit-seeking.

“In this regard and as an example, it is strongly recommended that, in addition to SI33 and SI55 that Government revoked in March 2014, Statutory Instrument number 89, which introduced the 10 percent export levy on concentrates is also immediately revoked,” Prof Saasa said.

Recently finance minister Chikwanda noted that the Government may lose income from Kansanshi following the revocation of the Statutory Instrument permitting export of copper ores and concentrates tax-free.

Chikwanda appeared before the expanded parliamentary committee on estimates in the company of Secretary to the Treasury Fredson Yamba and finance permanent secretary in charge of budgeting Pamela Chibonga recently.

Chikwanda said the Ministry of Finance had realigned Statutory Instrument 89 in line with President Sata’s directive that it be revoked although the move would result in revenue losses.

Mineralorogist and scholar who is also former deputy mines minister Marthius Mphande noted that Statutory Instrument 89 squarely rests on Chikwanda.

In response to lawmakers who had pressed the finance minister to categorically state if the President’s directive had been fulfilled, Chikwanda said: “We have realigned the SI which should have been in force up to next year September.

“It’s a complex issue on concentrates because Kansanshi Mine is building a smelter to process but it will take a year or more to complete and so there will be no income as concentrates will not be processed locally.”

Chikwanda said the government was aware of such an anomaly where Zambians were not benefiting from their mineral wealth.

The lawmakers in the committee also wondered whether the government could consider reintroducing windfall tax, which was a sure way of maximising profits from the mining sector which Chikwanda claimed there was extensive fraudulence in the mining sector, where players were quick in declaring losses even when they had made huge profits.

Government could no longer ignore concerns by majority Zambians that the nation was being ‘robbed’ of its mineral wealth by investors.

“Mines are not renewable like agriculture, and so we need our citizens to benefit more from this sector. We need to come up with a tax that will compel mining houses to pay whether they have made profit or not; that’s their own business,” Chikwanda said.

In Revoking SI 89, which Chikwanda signed on October 4, last year, President Sata admonished Zambia Revenue Authority commissioner general Berlin Msiska and commissioner of customs Dingani Banda for allegedly advising the finance minister wrongly.

The SI 89 reversed the November 2011 decision of the PF government to impose a 10 per cent export duty on copper ores and concentrates

2017-02-13T05:16:43+00:00 June 13th, 2014|Industry|Comments Off on Debate on mining taxation under SI 89 continues