Ministry of Mines Permanent Secretary Paul Chanda says mining companies should brace for the introduction of the Sales Tax and quickly re-orient their working plans to fall in line with the policy once it takes effect early next year.

In an interview, Chanda urged mining companies to brace for the introduction of Sales Tax next year.

“Of course, next year there will be Sales Tax, which implies that there will no longer be VAT refunds. This is government policy, and there is nothing that the mining companies can do. It will come into effect next year so, they just have to adjust their working plans. And you can see if you are a serious miner, would you rely on VAT for capital, no! You always have to find money to put in your business. VAT won’t be there. It’s also just being fair between us, as individuals, and citizens and companies. Not just the mines, but whatever company, which benefits from the VAT refund. We pay tax; VAT refunds have never been refunded to us. So, it’s just fair that we are given an equal playing field. It’s just common sense. So, the mining companies, all I can do is urge them to quickly adjust because they won’t be crying for refunds anymore! They should just work on their business plans and re-align them, re-orient them and see how they can fit in with the new policy,” Chanda said.

“As a Zambian, and as I know, that money which has been outstanding for this long, first of all, you remember that Statutory Instrument (SI) number 18, which came into effect. It demanded that whenever a mine company exports, wherever that copper, cobalt and all other kind of minerals goes, they have to make available to ZRA (Zambia Revenue Authority) the sales returns to show how much they have sold, to whom they have sold it to so that we are able to know how much we are entitled to as a country. Some companies complied and government, through ZRA, has been refunding that VAT refund. Of course, some amounts were too huge. The government is liquidating those arrears slowly.”

He insisted that VAT refunds cannot be used by mining companies to pay staff salaries, among other liabilities.

Government has proposed to introduce the Sales Tax in a bid to avoid paying VAT refunds, especially to mining companies, who are still owed around US $600 million, a situation that has strained government coffers.

“However, that cannot be the source of capital for mining companies. That should not be the reason to stop paying salaries. That money just helps for operations. And usually, that money is used to meet the salaries for the workers, buy some tea; those daily needs of the company. You cannot rely on VAT refund as your capital. Then you are not a miner. In mining, you have to bring money, real money, sink it there, invest it and buy equipment. I can tell you, one of those machines can cost as much as US $15 million. So, if you rely on VAT, then you are not going anywhere because mining calls for huge investment, huge capital. VAT refund is just to help in operations. So, the excuses that companies give for failing to pay workers is not welcome. It cannot be accepted, we don’t need people to give excuses,” said Chanda.

VAT can broadly be defined as a consumption-based tax, which is levied in the supply chain at each point where value is added to a good or service.

It was introduced in 1995 to replace Sales Tax at that time, which was not helping government generate as much revenue.

Data shows that since VAT’s introduction, government revenues have grown exponentially, but currently, government has to refund exporters, such as mining companies whose exports are zero-rated, a situation the PF administration is attempting to erase.

Sales Tax will, therefore, be re-introduced from April 1, 2019, despite stiff resistance from a broad range of stakeholders.