PricewaterhouseCooppers Tax expert Jyoti Mistry says concentrating revenue generation measures on the mining industry renders the Zambian economy highly vulnerable to movements in commodity prices and global economic conditions.
And Mistry says a volatile tax regime is not conducive to long-term investment.
In her presentation on Zambia’s 2019 national budget analysis and Outlook at Protea Hotel in Ndola, Monday, Mistry said
Mistry observed that the Zambian economy was still highly dependent on the mining sector.
“Given the country’s difficult situation, government may have taken a calculated risk by concentrating the revene generation measures on the mining industry. However, this us a precarious measure as it renders the Zambian economy highly vulnerable to movements in commodity prices and global economic conditions,” Mistry said.
“Despite this, the sector faces an increasing number of obstacles that could hinder its development. Most notably, government domestic borrowing continues to crowd out the private sector. Government says it will address this by dismantling arrears, although it has yet to give details as to how it will fund this. The private sector also faces increased costs in light of the new 30% restriction on interest seduction on loans, as discussed earlier, plus the recent increase in minimum wages. Furthermore, continued kwacha weakness in light of Zambia’s Fiscal position and higher fuel prices could also weigh heavily on an already over burdened private sector if these trends continue.”
And Mistry said a volatile tax regime is not conducive to long-term investment.
“Additionally, mineral royalty tax will no longer be deductible as a cost for purposes of determining the taxable income. Whilst the majority of the mining sector will face an additional burden, companies that use the copper cathodes to add value will see a reduction in corporate income tax rate fron 35% to 15%. It should be appreciated that a volatile tax regime is not conducive to long team investment,” said Mistry.
“The impact on jobs, investor confidence and investment arising from the last spate of reactive changes to the mining tax regime between 2013 and 2015 should not be forgotten. It is also a great concern that the current pipeline of exploration projects has diminished significantly. Any disinvestment or curtailment of operations by these companies would have a significant impact on the rest of the economy.”
Earlier Ministry of Finance permanent secretary Emmanuel Pamu attributed the depreciation of the Kwacha to more importation than exportation of goods.
Dr Pamu encouraged exportation of goods by Zambians so that Kwacha could regain its value.