ECONOMIST Kampamba Shula says Zambia is facing a real risk of discouraging further investments in the mining sector with the raised mineral royalties, which may force companies to avoid paying.
Commenting on the controversial 2015 mining fiscal regime that saw mineral royalty tax jump to 20 per cent for open-pit mines and eight per cent for underground operations from the previous six per cent, Shula stated in a study that the country is facing a real risk of discouraging further investments in the sector.
“The country is facing the real risk of legislating and enforcing a mining fiscal architecture that discourages investments in this strategic sector of the economy, and yet what is urgently needed now is to ‘grow the pie’ instead of focusing too much on how best to share the existing tiny one,” he stated in a Mining Sector in Zambia report titled: “The Price of Perspective”.
Shula, who is chairman and corporate affairs director of Cravenvill Investments, stated that the fiscal regime introduced policy instability that made it difficult for investors to find predictable.
“For investment and long-term planning to be encouraged in the mining sector, the fiscal regime must be sufficiently stable and predictable. Frequent policy changes make it difficult for any investor to plan in the long-term. It is also noteworthy (it must be said) that policy instability possesses the capacity to induce mining companies to find ways of avoiding those taxes that they deem punitive,” he added.
He suggested that had the policy been thoroughly scrutinised, stakeholders would have noticed its complications.
“If this policy was closely interrogated prior to presenting it to Parliament, it was going to become clear that it does introduce new complications and would clearly encourage the mining companies to take uneconomic decisions. The reasons for this seem straightforward,” Shula stated.
He also stated that the fiscal regime’s introduction has clear drawbacks as it did not take into account individual mining houses’ cost structures.
“The introduction of two royalty rates is presumably a sign of recognition of the high costs of most underground mines in Zambia. However, if the intention was to reduce the tax burden on marginal mines, the system has clear drawbacks, particularly since it does not recognise that open-pit mines may also have high costs; as, for instance, in the case of Lumwana,” stated Shula, who also criticised the “culture of secrecy” which both the mines and the government had been engaged in, calling for greater transparency on both parties