Finance Minister Alexander Chikwanda on low mining revenues :
[Members of Parliament] have rightly expressed their disquiet about the paltry contribution of the mining sector to tax revenue. The mining sector in Zambia contributes merely 5 percent to domestic tax revenue while the contribution of the mining sector in the other major SADC mining countries is at 11 percent. The mineral royalty in these countries is 3 percent while it is 6 per cent in Zambia.The low contribution of the mining sector in Zambia can only be attributed to pervasive fraudulence, a state of affairs we are dealing with by placing a team of experts in Zambia Revenue Authority to design systems which will enable government to determine both the quantities and content of the minerals produced in Zambia.Only then shall we be able to restructure the taxation of the mining sector in a way that optimises revenue from the sector without impairing the operations of the sector. Minerals are a non-renewable resource and it is only fair that the country gets a fair and reasonable return from its non-replenishable resources, in the process safeguarding the interests of posterity.(Source : Ministry of Finance)
Chikwanda's example is a case of failing to think. The relationship between the level of mineral royalties and its share of total domestic revenue is not direct across countries. It is possible that other countries are more dependent on mineral royalty revenues to raise national domestic revenues than Zambia, and hence have higher shares of mineral royalties.
A better way to compare Zambia against other countries is to look at effective mining tax rates and what is actually collected in practice. That way we can begin to form of basis for checking whether it is a case of fraud or the effective tax rates are too low. As always Chikwanda appears struggle with very basic ideas.
Chola Mukanga | Economist
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