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Friday, 13 June 2008

A new "clarification" on mining taxes.....

The IMF have now published Zambia’s letter of intent and the “promises” of the Zambian government in the short to medium term. It contains this statement on the fiscal regime:

A new fiscal regime for the mining sector came into effect on April 1, 2008. The new regime will ensure that the government receives a greater share of mining profits and rents, through the introduction of a windfall tax and a variable profit tax, as well as an increase in the mineral royalty. In implementing the new fiscal regime, the government will be mindful of the need to preserve Zambia’s attractiveness for investment in mining. To this end, the windfall tax and the variable profit tax will not apply at the same time. When the windfall tax applies the profit tax rate will be the standard 30 percent. With international copper prices projected to decline by about 12 percent in 2008, mining revenue is estimated at 2.8 percent of GDP in 2008, about 1.4 percent of GDP higher than estimated under the old fiscal regime. In 2008, all mining revenue in excess of what would have been collected under the old regime K 722 billion will be saved in a separate government Mining Resource Account (MRA) account at the Bank of Zambia (BoZ). The MRA will be used as a stabilization fund to smoothen expenditures over time taking into account macroeconomic conditions and absorptive capacity. In 2009 and subsequent years, the net inflow to the MRA will be based on the medium-term expenditure framework (MTEF). The funds would be used to finance high priority projects identified in the FNDP. All revenues, including those channelled through the MRA, and expenditures will be fully integrated in the budget and fiscal accounts.
So there you go friends. The windfall tax and the variable profit tax will not go together. This most certainly reduces the burden on mining companies and may explain why the government is projecting lower fiscal revenue than is gleaned a double application of variable profit plus windfall taxation. Interesting also the new money will be spent on “high priority projects”. The government could have said “infrastructure” rather than projects, but I suspect they have not yet figured how to use the money. We wait eagerly to know what these are...

2 comments:

  1. Cho,

    With international copper prices projected to decline by about 12 percent in 2008

    I hope that doesn't mean the government will levy less taxes from the mining industry.

    How are they going to predict copper prices for the next 6 months?

    The government could have said “infrastructure” rather than projects, but I suspect they have not yet figured how to use the money.

    I have a few ideas, if they're open to suggestions. :)

    Imagine not knowing what to do with the money.

    ReplyDelete
  2. What I find puzzling is that this latest "clarification" is not in the acts that have been passed.

    Government has made an arbitrary decision here..I think.

    I don't recall ever reading this tax only applies if this one doesn't. If that was case, then the mining companies would not have cried foul.

    This is definitely a new shift in policy, outside the legislative framework.

    ReplyDelete

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