HH speaks out on mine royalty tax

By Obert Simwanza

 

Zambia’s leading opposition figure Hakainde Hichilema has asked the government to collect what is currently owned by mining investors before seeking to change the taxation system.

Hichilema, who leads the largest opposition party – United Party for National Development (UPND) said the government should collect what is owed under the current taxation system and consult widely before embarking on a new taxation system.

“Before you meddle with the taxation system, make sure you are collecting what is owed under the current system. Consult widely and be transparent in developing policy, also ensuring that ministers and State House are in agreement over a policy before it is announced to avoid U-turns only a few weeks later,” Hichilema said in his weekly thoughts for this week.

The opposition leader said that the government and president Edgar Lungu should realise that policy consistency was cardinal in growing the country’s economy.

“Remember that policy consistency is essential for industry growth and industry growth will naturally deliver greater revenues, as well as creating much needed jobs and opportunities for local businesses which directly benefit the Zambian people,” he said.

He said that when the PF government introduced the new mining tax regime in the 2015 national budget, the opposition cautioned against the move. The UPND leader said that opposition parties and other stakeholders warned that the failure to properly consult industry could end up doing more harm than good if the end result was mine closures and job losses.

In developing tax administration reform for the mining sector, Hichilema said the first consideration must always be what policy will ultimately deliver the greatest benefit to the Zambian people.

He said the greatest benefit would come from those policies that increase jobs and opportunities for Zambian businesses, as well as revenues collected by Government that would ultimately be invested in other sectors.

“With these objectives clearly in mind proper consultation is needed to develop effective policies that complement the Government’s broader approach to economic management. This was clearly lacking in the case of the rise in royalty rates announced in the 2015 budget and has since led to one major investor publicly stating their intention to withdraw,” he said.

This is an investor who currently contributes US$45 million in revenues each year, and perhaps more importantly is responsible for hundreds and even thousands of employees who have their own dependents, as well as employees hired by subcontractors who service the mine. If the increased royalty rate leads to mine closure and delays of planned investment then it will actually have an impact of reducing total revenues and the number of jobs,” he added.

In the current scenario, he said that increasing royalty rates in was not a sensible approach and is negatively impacting investment prospects. Hichilema said that this was so because no two mines have the same cost structure of production even if they had the same level of production or revenues.

“If you take an example of two mines, both open cast, and they produce 10 metric tons a year. From a revenue perspective under the current regime both are taxed US$12,220 i.e. 20% of 10 metric tons at a price of US$6,110 a ton. However, Mine A spends US$2,340 to produce a ton of copper and Mine B spends US$4,670 to produce a ton. This means Mine A will make gross profit of US$25,480 and Mine B gross profit of US$2,180. While the Chamber of Mines issued an early warning of the likely result of this policy the Government chose to press on regardless and now finds itself in a panic once again,” he said

He emphasised that increasing royalty rates was misdirected as the problem was with the failure to collect revenues owed. Hichilema said the solution was not to increase the tax but rather to ensure that all taxes owed were properly recorded and collected, and that further investment was also facilitated so that revenues and jobs can both increase.

“What use is increasing the level of tax if we are not properly collecting the existing amount? Government can also help secure greater benefits for Zambians through supporting local businesses to participate in the industry and both drive and benefit from economic growth,” he said.

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