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Lusaka – The Zambian government and mining companies are at loggerheads over plans to increase mine royalties, while the people complain they are seeing no benefits.
The Zambian government plans to revise the tax system and raise royalties to triple revenue from the mining sector by 2017 and prevent tax evasion. Some mining firms have already frozen their activities over tax disputes, and others say the new reforms will lead to the closing of mines.
For their part, residents from the Copperbelt say that mining has not led to an improvement in infrastructure and services.
In the 2015 national budget, finance minister Alexander Chikwanda proposed to redesign the fiscal regime by replacing the current two-tier system with a simplified structure resulting in an increase of mineral royalty to 8% for underground mining operations and 20% for opencast mining.
The government would then eliminate the 30% corporate income tax for mining firms. Treasury sources say the new tax formula would help the government to recoup some of the nearly $2bn it believes is lost from the mining sector each year. The proposal is part of a plan to treble revenue collection from the mining sector to $1.5bn by 2017.
The government’s three-year push would allow it to fund key infrastructure projects and invest in measures to reduce poverty.
“The moving away from corporate income tax to a tax based on turnover simply shows that the Zambia Revenue Authority (ZRA) and government agencies responsible for tax administration do not have the capacity to monitor what is being mined, produced and sold, [or] the price of the metal, including the cost structure of the various mines,” says Lubinda Habazoka, a senior lecturer in business at The Copperbelt University.
Zambian officials say the Australian model of targeting production instead of profits is a way to reduce ‘revenue leakages’ in a sector riddled with tax avoidance and transfer pricing, through which multinationals artificially reduce the price of their exports to pay less tax.
The industry predicts vast losses if the government follows through on its plan.
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