Finance Minister Margaret Mwanakatwe says she will appoint a Tax Policy Review Committee to review issues raised by members of the public on the revised policy.
Last week, Zambia Chamber of Mines president Nathan Chishimba warned that proposed tax changes by government would put the country on a precipice of a deadly spiral that will damage the country, hurt the mining sector and make the country un-investable.
“More tax regime instability, massive increases, and novel taxes not seen anywhere else in the world, will hurt the mining industry and all those who rely on its success,” Chishimba warned in a statement issued in Lusaka, Thursday, after an emergency meeting of mining companies.
“Having met as an industry, we are convinced that attracting investment is the only way to grow our economy and growing our economy – and the base of taxpayers – is Zambia’s route to a prosperous future. To that end, we had a 10-point plan, which we took to government in July, in which we believed we could double the size of copper production and add a billion dollars a year of fiscal revenue, over the next six years.”
He said the non-refundable aspect of the sales tax would severely impact cost of mining, adding that the financial uncertainty was so great that banks are currently unwilling to provide financing to all miners.
“The budget introduces a further feature to the MRT regime, which no other leading copper mining country applies. That is that MRT payments will no longer be deductible against Corporate Income Tax. This is in effect double taxation and takes no account of the need for reinvestment in exploration and expansion. The budget introduces the notion of a non-refundable Sales Tax, in replacement of VAT, without providing any detail whatsoever. Quite apart from the non-refundable aspect, which will severely impact cost of mining, the financial uncertainty is so great that banks are now unwilling to provide financing to all miners, big and small, without further clarity. The export duties that are intended to be applied to gold and gemstones will hit emerging and established operations alike. In fact, they will have the effect of putting legitimate operators, many of whom are Zambians, out of business,” argued Chishimba.
“The introduction of an import duty on concentrates, combined with Sales Tax, will render imports uneconomic, and partially shut down the Copperbelt’s smelters and refineries. This initiative flies in the face of the government’s beneficiation drive, and in one strike, destroys the potential for Zambia to become a southern African value-addition hub. This initiative has the effect of stringently penalising any company that has borrowed funds to invest in operations. Not only does this dramatically increase the cost of borrowing for any business, but it completely disincentivizes the entrepreneurial risk-taking necessary to start new businesses. Some people will regard these increases as a great windfall for Zambia. But bear in mind that no operation will mine, explore or invest under those circumstances. The returns are simply not worth the risks inherent in mining. So, far from being a feast, this budget will lead to famine.”
But in a statement issued by Ministry of Finance public relations head Chileshe Kandeta, Sunday, Mwanakatwe promised to appoint a Tax Policy Review Committee.
“The Ministry of Finance has taken note of the public statement made by the Zambia Chamber of Mines. We also acknowledge receipt of letters from some stakeholders, and the Chamber, seeking clarification on the new tax regime. Working with other stakeholder Ministries and relevant government agencies, we remain open to dialogue with mining companies that are willing to amicably discuss the transition to the new tax regime, implementation of sales tax and other fiscal and economic affairs, and future business cooperation matters,” stated Mwanakatwe.
“In view of the foregoing and in respect of our own plan to ensure a smooth transition, the Tax Policy Review Committee will be reconstituted and appointed to deal with technical issues related to tax implementation matters raised by the public.”
The Ministry affirmed that consultations on sales tax policy implementation would be wide and extensive before commencement in April 2019.