A confused picture is emerging on Zambia’s mining taxation policy. Mines Minister Christopher Yaluma recently said ., “It is our responsibility and obligation to ensure that we provide an enabling environment for the mines to sustain their operations in the country. We are looking at revisiting the tax regime. Anytime from now we are going to make known [the changes] after cabinet approval.”
That statement was made on 28 June 2014. It was interpreted by many, including mining companies, as suggesting that mining taxes were going to be reduced. This was because Yaluma’s statement came shortly after FQM announced that it would hold back from investing $1 billion in Zambia.
But two weeks ago Christopher Yaluma gave an interview to CNBC Africa on the sidelines of the ZIMEC 2014 conference in Lusaka were he said Zambia is benefiting from mining. That apparently is a signal that mining taxes will have to go up because Government has a huge funding hole at present.
The problem is that the PF government is broke facing an ever widening deficit. The earlier announced negotiations for an IMF bail out programe (SAP Mark II) which are scheduled to start in September 2014 appears to be running into some political problems. There are people in PF, including President Sata, that are rightly wary of a new SAP and would prefer not to let the long fingers of the IMF near Zambia again.
So the only game in town for the 2015 budget is higher taxes. The mining companies are certainly expecting higher taxes. They have gone into overdrive. Last week the Chamber of Mines (CoM) misled a gullible public again by suggesting the “variable profit tax is the same as the windfall tax”. CoM also cautioned that it will "not help to tax the mines to the point where the mines run out of business".
Whatever the position of mining taxes, there is no doubt that mining companies' mood must have improved yesterday when they read the pro PF paper The Post. It reported that Finance Minister Alexander Chikwanda wants the GRZ to pay mining companies the disputed US$600 million (about K3.6 billion) in VAT repayments over a staggered period. ZRA has withheld the money to mining companies that have failed to provide importer documentation required to qualify them for VAT reclaim on the zero-rated copper exports.
The Post says the government currently does not have money to offset the VAT refunds being claimed by mining companies. So Chikwanda apparently says the only way for the PF government to clear this backlog promptly is to allow the Ministry of Finance access to to the recently-acquired US$1 billion which currently is ‘sitting’ at the Bank of Zambia. Of that US$1billion Eurobond, only US$300 million has been disbursed so far and the remaining the US$700 million is still with the Bank of Zambia. In short Chikwanda wants to give the money compamies the money from the Eurobond.
Chikwanda also wants to scrap the VAT General Administration Rule Number 18, which requires ZRA to obtain information from importers outside Zambia’s jurisdiction because it has "proved impractical and is responsible for delayed processing of VAT refunds for the mines". VAT Rule 18 was aimed at assisting the government collect more accurate trade statistics. Chikwanda has already suspended SI55 which was aimed at curbing illicit flows.
So a confused picture indeed. Our friend Yaluma and his very "smart" buddy Chikwanda (who said we are all fools) do not appear to know whether they coming or going. One thing is clear : the PF and opposition need mining companies to fund their election campaigns. So whatever happens someone will keep laughing to the bank. And you can be sure it is not the residents of Chibolya compound or Kankoyo for that matter. Its policy making, Jim, but not as we know it!
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