The number of policy reversals on mining taxation that have occurred over the last few months, are a clear demonstration that government lacks capacity and decisiveness to address the challenges with mining taxation. With such pronouncements, it is evident that government is clearly being manipulated into believing that they have increased corporate tax when in fact not.
Before the 2015 fiscal regime changes, corporate tax was 30% which was scrapped and replaced with mineral royalties of 20% and 8% for open pit and underground mining respectively.
However, it seems, following pressure from mining companies, government scrapped the new mineral royalties and seems to have been coerced to revert to the old tax regime, hence the re-introduction of the 30% corporate tax while mineral royalty is set at 9% for open cast mining and 65 for underground mining. The 9% mineral royalty is also set to be reduced further, given recent pronouncements by Minister of Mines Hon. Christopher Yaluma.
ActionAid Zambia is concerned that government backtracked on the tax reforms it introduced in the mining sector, which according to the Minister of Finance were aimed at countering tax planning and tax avoidance schemes such as; transfer mispricing, hedging and trading through shell companies among others. With such schemes, coupled with illusory reporting of profits for tax purposes, it is unlikely that the country will be able to generate much revenue with these tax measures.
As the Minister of Finance noted during his 2015 budget speech, only two mining companies were paying corporate taxes as the rest were declaring losses. ActionAid Zambia is further concerned that the country has failed to develop adequate capacity to effectively tax mines after so many years in mining and the varied capacity building support provided by various cooperating partners.
It is therefore strange and misleading that government is proudly announcing the reintroduction of corporate tax for the mining sector as an increase when it clearly isn’t. It is unfortunate that our government is trying to mislead its citizens by instituting tax measures that are not well researched given the number and frequency of changes in the mining tax regime which has resulted in losses of colossal sums of tax revenues according to estimates provided by government where the changes in mining tax regime will lead to reduction in revenue of about K2.21 billion.
We thus call on government to get their act together and to decisively address mining taxation challenges by instituting tax measures that are both beneficial to the country and that promote sustainable and good mining investment in the country. This can only be done if government puts in place measures to ensure total transparency of mining operations and broadens its consultations on development of tax policy in the sector. Government must itself further be transparent and accountable for all resources raised and desist from being manipulated by mining companies and other investors by compromising on positions that would help our country collect adequate revenues from the sector to finance our development.
Notes: ActionAid Zambia is a national organisation working to end poverty and injustice in Zambia
Contacts: Pamela M Chisanga, Country Director email@example.com +260966453677