Collect Adequate Taxes from the Mining Sector

Amb. Emmanuel Mwamba Wrote

With 70% of Zambia’s export coming from the mines, the behaviour of the mine houses on the state of the economy and the foreign exchange market is significant.

For example, the  big mine houses, have refused to comply with the The Bank of Zambia (Export Proceeds Tracking Framework) Directives of 2023.

This directed an exporter to open and maintain a bank account with a bank or financial institution domiciled in Zambia for purposes of these Directives.

The exporter and his bank are to ensure that all proceeds of export are deposited in this account.
So the mine houses stash the export proceeds  abroad and only send tonZambia residue amounts required to pay wages and recurrenr expenditure.

Infact, funds required for mine operations are derived from the highky porous and fraudulent Zambia Revenu Authority VAT Tax refund mechanism.

Minister of Finance, Dr. Situmbeko Musokotwane has a peculiar belief that tax and other incentives granted to mines and other large multi-nationals, attract investment and stability to their sectors.

To this effect, he abolished one of Zambia’s best profit-sharing mechanism, the Windfall Tax, that was introduced by his predecessor, Ngandu Magande.

When introduced in 2008, the Windfall tax earned the Zambian Government $600million from the mining sector, first earnings in a period 20 years after privatisation.

After the death of President Mwanawasa, his succesor, Rupiah Banda, appointed Musokotwane as new Minister of Finance, who immediately abolished the Windfall Tax.

With this tax incentive abolished, the stability of the Kwacha lost grip, and foreign debt rose sharply from $500,000 in 2008 to US$3.8m in 2011.

Similarly in 2019, Government introduced non-deductible mineral royalty tax that earned  the Treasury $1.1billion per year from the mining sector.

When President Hakainde Hichilema won elections in 2021, he appointed Musokotwane to return to the Ministry of Finance after ten years.

Musokotwane’s first call of business was to abolish the non-deductible mineral royalty tax.

If Musokotwane’s assertions were true, DRC which is facing war, instability and lack of infrastructure and lack of reliable electricity, would not have shot to become Africa’s number one producer of copper.

The DRC has attracted international mine houses that include Zijin Mining Group, Glencore, Ivanhoe Mines, Barrick, AngloGold Ashanti, and Eurasian Resources Group (ERG) who have focused on mining copper, cobalt, and gold mining.

Musokotwane’s return to the Ministry in 2021 sparked the same reaction to the economy as was the period he superintendented in 2008-2011.

The foreign exchange market became unstable, both domestic and foreign loans ballooned and Musokotwane’s reliance on aid escalated.

The 2023/2024 drought became a perfect setting for aid. Zambia’s food security was shaken,not necessarily by drought, but by government’s own careless decision to export in the year 2022 and 2023, literally, the entire national strategic food reserves.

Atbthe height of the adverse effects of the drought, Government refused to halt power exports to Bostwana, DRC, Namibia and South Africa thereby depleting its 2024 water allocation for power generation at Lake Kariba  exhausted by June 2024.

This action, driven by greed, spawned the worst power shortages Zambia has ever faced.

Strangely, ZESCO refused to halt power exports even when Zambia’s own industries and SMEs were collapsing for lack of power.

Musokotwane extended a global request for grant and food aid.

The fiscal hole created by reduced revenue from the mines has sent the Zambia Revenue Authority (ZRA) into a maddening frenzy  to target small tax payers such as landlords and SMEs.

Following reform of the rental income tax regime, the obligation on the tenant to withhold and account for tax to the Zambia Revenue Authority (the “ZRA”) has been abolished.

A tenant must now pay the gross rent to the landlord without any deductions and the obligation to account for the tax on rental income is now borne by the landlord.In addition, the reform has also revised the applicable tax rate for rental income.

Under the new regime, two rates will apply:  4% on rental income below K800, 000 per annum and a whopping 12.5% on rental income above K800, 000.

These desperate measures, and without sufficiently widening the tax base, will not plug the hole left by failure to collect adequate and fair taxes from the mining sector.

And the lack of zeal to implement the industrialisation plan to return Zambia to manufacturing, the country will remain susceptible to the vagaries of volatile exchange rate, rising inflation and debt and failure to curb poverty levels.