Africa-Press – Zambia. Incentives to the Mining Sector Robbing Government of Domestic Revenue
Amb. Emmanuel Mwamba Wrote;
President Hakainde Hichilema hosted Chief Executive Officers from the Banking and Financial Sector and claimed among other things, that tax revenue from the mining sector had grown with the sector paying $75million to the Treasury.
He denied that tax and other incentives have been given to the sector taking the time to praise First Quantum Minerals, the largest tax payer in the country, as an example.
Revenue has dropped from a record USD 1.9 billion, to about $300million a year according to the Extractive Industries Transparency Initiative (EITI).
President Hichilema’s Tax Incentives and other Decisions Benefiting Mine Houses.since 2021.
●Tax Relief:
Mineral royalty deductibility: In 2022, the government made mining royalties tax-deductible from corporate income tax, reducing the overall tax burden on mining companies. This plunged tax revenue to Government from $1billion a year to $300million.
● Reduced Property Transfer Tax: The property transfer tax on mining rights was lowered from 10% to 7.5% to encourage mergers and acquisitions.
●Extended Loss Carry Forward: The period for carrying forward mining losses was extended from 5 to 10 years.
● Unrestricted Loss Offsetting: Restrictions on offsetting losses against profits for mines with common ownership were removed, allowing for 100% loss offset.
● Sliding Royalty Rate: A sliding scale royalty system was introduced to adjust the effective tax rate at higher copper prices.
● Duty-free importation: Capital equipment and utility vehicles can be imported duty-free, with capital allowances increased to 100%.
● Input tax claim: Exploration companies can claim input tax for five years on pre-production expenditure.
● Zero-rated export products: Mining products for export are zero-rated for tax purposes.
Decisions Robbing Revenue
ZCCM-IH’s 20% shareholding in Kansanshi Mining Plc was converted to a 3.1% gross revenue royalty right robbing the company of its shareholder value, decisions and dividend benefits.
Government claimed that this move helped move opportunities from unpredictable dividends to guaranteed royalties.
Government also claimed that the previous dividend model meant that ZCCM-IH’s income was contingent on the mine’s profitability and dividend declarations, which were allegedly often unpredictable.
This means that instead of receiving dividends based on the profits of the Kansanshi mine, ZCCM-IH would now receive a guaranteed quarterly royalty payment equivalent to 3.1% of the mine’s total revenue
Government also abandoned court and arbitration process to recover $2.5billion illegally obtained and externalised by First Quantum from Kansanshi Copper and Gold Mine.
President Hichilema has returned Konkola Copper Mines to Vedanta Resources without guaranteeing or disclosing how Vedanta will pay and clear over $1.5billion owed to the Zambia Revenue Authority (ZRA), ZESCO, NAPSA and other entities.
Further a forensic audit conducted in 2015 revealed the Indian natural resources company failed to pay taxes for over 15 years, engaged in mining practices that degraded the mine assets and engaged in extensive loan spree staking the mine asssets in the process and failed to pay its tax obligations, meet utility bills to ZESCO and failed to pay suppliers and contractors.
President Hichilema has stated that Zambia “will not mine in courts of law” but resolve and end all legal disputes affecting Kansanshi and (KCM) but this has come at the expense of robbing Government of significant domestic revenue.
Lets take a brief look at revenue collected by Government between 2019-2022 when policies of the previous government were in place.
2019:
● First Quantum Minerals (FQM) contributed over ZMW 9 billion to the Zambian Revenue Authority.
● Mineral royalty tax accounted for 29 percent of total mining revenue, import VAT for 21 percent, PAYE 16 percent, company income tax 13 percent, and VAT 6 percent.
●Copper production decreased by 7.60% to 796,430 metric tons.
2020:
●The mining and quarrying sector accounted for 15.3% of Zambia’s nominal GDP.
●The sector contributed 31.4% of all Government revenues, amounting to ZMW 25 billion.
●Mining accounted for 79.5% of the country’s exports.
●Copper production increased by 10.75% to 882,061 metric tons.
2021:
●The mining and quarrying sector accounted for 19.4% of Zambia’s nominal GDP.
Mining accounted for over 70% of foreign exchange earnings.
●Copper production decreased by 8.97% to 802,967 metric tons.
●First Quantum Minerals contributed 61% of Zambia’s mining income.
● Mining companies’ total tax contribution was K6.4 billion in mineral royalty and K5.3 billion in mining company tax.
●The total tax contribution by the mining companies was K11.7 billion (USD 682 million) in 2021, and this was an 11% increase compared to 2020.
●In 2022, Zambia’s mining sector generated a record K43.3 billion in tax revenue, a 11% increase compared to the K39 billion collected in 2021.
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