Government will fail to hit their projected revenue target of around US $1.3 billion expected to be accrued from the new mining fiscal regime next year, according to the Zambia Chamber of Mines.
And the Chamber has reiterated that as many as 21,000 jobs could be lost over a three-year period in the mining sector resulting from the new tax proposals.
Meanwhile, the Chamber has disputed assertions that mining companies are trying to “arm-twist” government by threatening to scale-down operations and trigger job losses.
The 2019 national budget announced significant changes to the mining fiscal regime, which will see an increase in mineral royalty rates by 1.5 percentage points at all levels of the sliding scale.
Speaking during a media presentation, newly-appointed Zambia Chamber of Mines president Goodwell Mateyo announced that government will not hit their projected revenue target of around US $1.3 billion next year from the 2019 mining fiscal regime, but will only raise less than US $30 million from the tax measures.
Mateyo explained that more than half of mining operations in the country will be loss-making as a result of the fiscal regime government wants to enforce next January, and as a result, some will inevitably start scaling down operations.
“The proposed tax measures by the government were intended to raise a further US $530 million. So, the government anticipated that with the new taxation regime for mining, they would get mining tax revenue up to US $1.3 billion. But with the scaling back of production; the reduction in Foreign Direct Investments (FDI); the curtailment of expansion plans, this is not going to materialise,” Mateyo told journalists at Pamodzi Hotel in Lusaka, Thursday.
“…Because, they will be a loss in Pay As You Earn (PAYE) if employees are laid off; there will be a loss in Mineral Royalty Tax (MRT) if there’s a reduction in production in export duty. So, if we carry out the numbers, we realise that this US $1.3 billion that the Ministry of Finance intends to get in revenue in 2019 will not materialise. By our calculation, what will materialise will be US $844 million, which will only be US $30 million more than what was earned in 2018 under the current mining tax regime, but at greater pain of reduction in production; cancellation or deferment of expansion plans.”
And Mateyo cautioned that as many as 21,000 jobs could be lost over a three-year period in the mining sector resulting from the new tax proposals.
“The result of this is 7,000 jobs are at risk, and if we look at one mining job having three further (indirect) jobs, it’s a potential 21,000 jobs, which are at risk. There’s a bigger threat to production, with a lot of mines will have to scale back on production, they will have to scale back on investment, and this will all have a large social impact,” Mateyo explained.
“I must mention that that 21,000 is both direct and indirect, but that’s over a period of three years.”
When asked for the Chamber’s reaction from government’s sentiments that mining companies were trying to “arm-twist” government by threatening to scale-down operations and trigger job losses, Mateyo disputed such claims.
“Mines are mining with the purpose of giving a return to their shareholders, and if the cost of operations rises as a result of the fiscal regime, the first thing that you look at as any responsible businessperson is which are the least profitable aspects of your operation. And the curtailment of those least profitable operations, inevitably, if there’s going to be employees there, it means those employees become redundant,” explained Mateyo.
“So, it’s not necessarily that employees are being used as pawns; you don’t directly single out labour; you look at profitable and least profitable operations, and once those are closed, there’s an indirect effect of labour being left redundant in those areas.”
Government will, among other key measures, roll out import duties of five per cent on copper and cobalt, while equally introduce an export duty on precious metals including gold, precious stones and gemstones at the rate of 15 per cent next year.
The measures, however, have sparked a row between mining companies and government over the sudden change in the proposed tax rates.