Mineral production, dominated by copper, has long been Zambia’s largest non-agricultural sector in terms of economic output
There are doubts regarding the correct numbers – hence, the Mineral Value Chain Monitoring Project, recently commissioned by ZRA.
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We wish to inform stakeholders and Media organisations invited to the Zambia Chamber of Mines briefing on the implications of Zambia Revenue Authority (more…)
24 September, 2014
The Zambian mining Industry was in private hands for just over 40 years from the late 1920’s. During this period consistent investment in Exploration, Mine development, Mining and processing facilities construction resulted in copper production going from almost zero to over 750,000 tonnes with 64,000 direct jobs being created. The Mining industry was nationalised in 1972/73 and remained in State hands for 24 years. At the end of this period annual copper production levels came down to around 250,000 tonnes and employment levels had reduced to 22,000 jobs.
The mining industry was privatised. The process spanned a period of three years from 1997 to 2000. Between 2000 and 2014, the new investors had invested over 10 billion US Dollars in the Mining Industry for Exploration, Mine and processing facilities development, refurbishment of dilapidated mining and processing facilities. This resulted in deepening of mine shafts, extension of open pits, sinking of new mine shafts, starting new green field integrated mining projects, construction of modern environmentally friendly processing facilities and opening up of new mining frontiers away from the traditional Copperbelt of Zambia into the North Western province. This has resulted in copper production levels reaching over 760 000 tonnes in 2013 and the projection for 2014 is 800,000 tonnes with over 90,000 direct jobs being secured/created.
Zambian Mining Industry contribution to the treasury
According to the ICMM (International Council on Mining and Metals) report quoting submissions from the Zambia Revenue authority, between the periods 1997 to 2006, the total contribution of the Mining Industry as a percentage of all tax collections by ZRA was averaging around 5%. As the investments started maturing the levels started increasing progressively until the percentage reached a high of 44% in 2011 and slightly dropped to 32% in 2012. Mineral royalties and company tax make up the bulky of the mineral taxes. Table below shows the detailed data from the ICMM report.
The latest EITI report shows that mining revenue in 2011 nearly doubled to Kw7.7 bn compared to Kw3.7bn revenue collected in 2012. This represented over 30% contribution to Government revenue in the year under consideration. In addition to the increase in revenue, the EITI report has shown a decrease in the discrepancy between mining company payments and Government receipts. The net discrepancies were ZMW 12 billion in 2008; ZMW 31.4 million in 2009 and 8.8 million in 2010.
Comparing Zambian Overall Mining Tax Rate to other Mining Jurisdictions
According to Wood Mackenzie (An international, energy, metals and mining research consultancy group that supplies comprehensive data, written analysis and consultancy advice) Zambia’s overall effective tax rate on Mining companies is about 45% as shown in the graph below. This is one of the highest tax rates in the world. Even our neighbours DRC have a much lower rate at 25%. This is a major deciding factor for Foreign Direct Investment decisions.
Audits done on the Mining Companies.
Various statutory audits are done on the Mines. Firstly by independent internationally recognised accounting firms which audit the books of accounts. ZRA conduct annual and ad hoc audits on the mines and these look at mine to metal production and revenue streams thereto. Additional audits are conducted by the Office of the Auditor General on Government agencies which are overseers of Mining operations such as Ministry of Mines, Energy and Water development Mines Safety Department, Geological survey and Zambia Environmental Management Agency.
Furthermore in order to show transparency and accountability in the extraction of Zambia’s natural resources, The Chamber of Mines joined the Zambia Extractive Industries Transparency Initiative, ZEITI in 2008, and in 2012, Zambia was declared EITI compliant. Being declared EITI compliant implies that Zambia has put in place effective processes for enhancing transparency and accountability in the mining sector.
In addition to all these audits, ZRA in early 2013 set up the Mineral Value Chain Monitoring Project. The project was responsible for carrying out an independent assessment and verification of the levels of production in the entire mining industry in Zambia and for reviewing, developing and implementing a mechanism for monitoring the exports of these minerals. All the mining companies fully supported this initiative and cooperated with the whole exercise. The findings of this high level audit have not been shared with the Mining companies so that any gaps found can be addressed.
The Mining Investment cycle
In the Mining business, Exploration is a prerequisite and this can take 5 to 10 year (without a guarantee of finding something) , Mine development another 5 to 10 years, Construction of Mine infrastructure and processing facilities another 5 to 10 years and closure anything from 2 to 20 years depending on the project environmental activities. This is a long time and requires a stable investment climate with fiscal policies which are clear, competitive and stable. See graph below.
VAT rule 18
This Rule was introduced in 1997 and was meant to encourage exporters. By allowing an exporter to reclaim input from value-addition, the Rule would reduce the exporter’s costs and in turn make the product more competitive on international markets. Mining companies that export their products to the international metal markets must meet the following requirements before a claim of the VAT is refunded by ZRA.
It is the requirement that proof of arrival of the exported commodities in the receiving country is made which is impractical. Almost all the metal sales into the international market is to trading houses which are multinational. Products once received by the traders can be split, can change hands several times and may even be changed into different products before reaching the final point of consumption. It is impossible for the seller/exporter to track the products and obtain documentation from the receiving customs jurisdiction to confirm that the products did reach that destination or destinations.
Impact of failure to resolve the outstanding issue on VAT rule 18 on the Mining companies
The non-payment of the withheld VAT refunds have had and continue to have a major adverse impact on the operations of the Mining companies. Cash flows are seriously constrained and to keep operations going the following undesirable actions have had to be taken:
The effects of these actions are already being felt and in the medium to long term, there will be a negative impact on:
The way forward
Our sincere appeal is that VAT rule 18 be looked at urgently and resolved and the VAT refunds made to all exporters so that we can continue to progress on the path of increasing mining and manufacturing production to sustain and continue to create jobs. The Zambian Mining Industry will continue to be the Engine of the Zambian economy for a long time to come. This industry needs to be nurtured so that we continue to generate revenues required to diverse our economy.
19th September, 2014-The inaugural Chamber of Mines of Zambia Corporate Golf Tournament slated for Friday, 26th September, 2014 at Nkana Golf Club in Kitwe, has been boosted by coming on board of Zamtel as Platinum Sponsor. Zamtel has injected fifty thousand Kwacha (K50, 000.00), into the tournament which has also seen Mopani Copper Mines and Atlas Copco sponsoring Silver at fifteen thousand Kwacha (K15, 000. 00) per team of four players.
Out of the targeted 30 teams, a total of 21 teams have so far confirmed participation at K5,000.00 each.
The President of Chamber of Mines, Mr Jackson Sikamo has expressed gratitude to all the sponsors with a special thank you to Zamtel for being a reliable partner for all occasions.
“to many people, the involvement of the mining industry in sport may not in any way be new, because for a long time sports development, of all sorts and at all levels, in Zambia, was anchored in the initiatives driven by the mining industry and to date, our members continue to play a key role in supporting sporting activities. But then, I am sure many do agree with me, that to the Chamber, this golf tournament is genuinely a novel and exciting concept because it is the first sports tournament of its kind that the Chamber is hosting or can be identified with directly,”Mr. Sikamo said.
On the same day, after the Golf Tournament, the Chamber is launching its new logo and embracing a new mission statement, “Advancing the interests of our members, local communities, the country and all stakeholders whilst promoting sustainable and responsible mining” which we believe underscores our resolve to reposition the Chamber to enable it exercise its rightful role effectively, as a partner in development and a vehicle for positive engagement among stakeholders, particularly on issues affecting the mining industry.
Mr Sikamo assured that this transformation will further reassure stakeholders and our social partners of the relevance of the chamber to the national development agenda, to leverage successes recorded in the mining industry as a spring board for economic fortification, through diversification of our economy.
Tournament organizer, Rodwell Chawatama says companies still have up to next week Tuesday to enter teams and is hopeful that the 30 team target will be exceeded.
CHAMBER OF MINES OF ZAMBIA
The Chamber of Mines Council for First Aid (CMZCFA) held its 9th Inter-Company Competition, under the theme, “EVERY SECOND COUNTS, KNOW FIRST AID,” on Saturday 16th August 2014,at Chambishi Stadium.The CMZCFA is responsible for the supervision and coordination of First Aid activities in the mining industry; to ensure that members adhere to prescribed standards and have adequate requisite First Aid infrastructure and facilities.Eighteen (18) teams participated, including three (3) from Contractors, i.e. JCHX sent two (2) teams from its operations at Konkola and Chambishi Mine sites, and Red Path Mining sent one team. The event was graced by the Director of Mines Safety Department, Mr. Gideon Ndalama, on behalf of the Permanent Secretary in the Ministry of Mines, Energy and Water Development, and the Deputy Mayor of Kalulushi District. The area Member of Parliament, Honourable Rainford Mbulu, the Deputy Minister of Labour and Social Security, attended the event.
Also in attendance were representatives of various mining companies and business partners, while on the sidelines some companies in the occupational health business exhibited their products and promotional materials.The Competition was won by Mopani Copper Mines – Mufulira Concentrator Team. Chambishi Metals Plc came second, while Lubambe Mines Plc took third position.The Chamber wishes to heartily congratulate the wining team, all participating companies, business partners and members of the public,particularly Chambishiresidents, who came to watch the drills and support the teams.
ZAMBIA REVENUE AUTHORITY, VAT RULE NUMBER 18(1(b))SHOULD BE AMENDED AND ZRA HAS AN OBLIGATION TO PAY THE OUTSTANDING VAT REFUNDS
WE HAVE BEEN SURPRISED BY SOME MEDIA REPORTS THAT APPEAR TO INDICATE THAT THE CHAMBER OF MINES (CMZ) HAS REACHED AN AGREEMENT WITH THE ZRA TO RESOLVE A CONTENTIOUS ISSUE RELATING TO THE NON-PAYMENT OF INPUT VAT TO EXPORTERS BY THE ZRA.
IN THE REPORT ASPERSIONS HAVE BEEN CAST THAT THE CHAMBER OF MINES PROPOSED TO MAINTAIN RULE 18 IN ITS CURRENT FORM AS IT IS MEANT TO STRENGTHEN THE VAT SYSTEM.
IT IS INCORRECT TO CHARACTERIZE THE ISSUE OF VAT REFUNDS AS AN ISSUE FOR THE MINES ALONE. ZRA HAS BEEN WITHHOLDING REFUNDS FOR ALL EXPORTERS, AS EVIDENCED BY A LETTER FROM THE ZAMBIA CHAMBER OF COMMERCE AND INDUSTRY (ZACCI) TO THE MINISTER OF FINANCE. THIS ISSUE THEREFORE CONCERNS THE ENTIRE ECONOMY.
THE CHAMBER RECOGNIZES THAT A NUMBER OF OTHER IMPORTANT SECTORS SUCH AS AGRICULTURE AND MANUFACTURING HAVE BEEN ADVERSELY AFFECTED BY THE CURRENT REQUIREMENTS BY ZRA UNDER RULE 18(1)(B).THE CHAMBER THEREFORE REGRETS THE CYNICAL AND GROSS MISREPRESENTATION BEING PERPETUATED THAT THE ISSUE OF VAT REFUNDS ONLY APPLIES TO THE MINING INDUSTRY.
WE WISH TO STATE THE FOLLOWING;
RULE 18 HAS BEEN IN EFFECT SINCE 1997. BUT THIS RULE HAS NEVER BEEN FULLY ENFORCED DUE TO THE IMPRACTICALITIES OF DOING SO. HOWEVER IN 2013, THE ZRA BEGAN TO ENFORCE THIS RULE CREATING DIFFICULTIES FOR EXPORTERS TO RECLAIM THEIR INPUT VAT.
THE CHAMBER HAD PROPOSED TO THE ZAMBIA REVENUE AUTHORITY THAT THE REQUIREMENT THAT EXPORTERS OF GOODS AND SERVICES SHOULD SUBMIT DOCUMENTS FROM IMPORTING COUNTRIES BE AMENDED AS WE HOLD IT THAT ZRA SHIPPING INSPECTION AND DOCUMENTS ARE SUFFICIENT PROOF TO DEMONSTRATE THAT AN EXPORT OF GOODS AND SERVICES HAS TAKEN PLACE.
IN PARTICULAR, WE ARE CONCERNED THAT DOCUMENTS GENERATED BY THE ZAMBIA REVENUE AUTHORITY ARE DEEMED AS INSUFFICIENT OR INADEQUATE TO DEMONSTRATE PROOF OF EXPORT.
ALTHOUGH ZRA EXPRESSED CONCERN THAT SOME MEMBERS OF THE CHAMBER HAVE TAKEN ZRA TO COURT AND COULD NOT THEREFORE DEAL WITH THE TAX REFUNDS SO FAR OWED, THE CHAMBER HELD THAT THE MATTERS ARE SEPARATE AND SHOULD BE DEALT WITH ACCORDINGLY. THE CASES IN COURT RELATE TO RULE 18 WHICH WOULD AUTOMATICALLY BE RESOLVED ONCE THE NECESSARY AMENDMENT TO THE RULE IS ENACTED.
IT IS IMPORTANT TO NOTE THAT WE HAVE BEEN MAKING THESE SUBMISSIONS TO ALL RELEVANT AUTHORITIES.
ZERO RATING OF EXPORTS IS NOT A TAX INCENTIVE AND IS APPLICABLE ACROSS MANY COUNTRIES. IT IS DESIGNED TO PROMOTE THE GROWTH OF EXPORT EARNINGS THROUGH COMPETITIVEPRICING IN THE INTERNATIONAL MARKET.
WE WISH TO STATE THAT ZRA WITHHOLDING TAX REFUNDS WHICH EXPORTERS ARE LEGALLY ENTITLED TO, WILL RENDER THEIR PRODUCTS UNCOMPETITIVE.
ON 23RD OCTOBER 2013, WE SUBMITTED TO THE PARLIAMENTARY EXPANDED COMMITTEE ON ESTIMATES, AMONG OTHER THINGS THAT RULE 18(1) (B), BE AMENDED. THE REQUIREMENT THAT THE EXPORTER PRODUCES DOCUMENTS FROM THE IMPORTING COUNTRY WAS DIFFICULT TO IMPLEMENT AND COMPLY TO.
ON 4TH FEBRUARY 2014, WE MADE ANOTHER SUBMISSION ON THE EFFECTS OF WITHHOLDING THE REFUND OF VALUE ADDED TAX BY ZAMBIA REVENUE AUTHORITY ON METAL EXPORTS BY MINING COMPANIES TO THE THEN ACTING SECRETARY TO THE TREASURY, MR FELIX NKULUKUSA AT THE MINISTRY OF FINANCE WERE WE INDICATED THE IMPLICATIONS AS FOLLOWS:
IT IS A WELL-KNOWN FACT THAT COPPER EXPORTS FOLLOW A THOROUGH DOCUMENTED PROCEDURE WHICH IS VERIFIED AT THE ZAMBIAN PORT OF EXIT, THROUGH THE ZRA’S ASYCUDA SYSTEM. WE HOLD THAT THE DOCUMENTS PRODUCED BY THE ZRA TO THE EXPORTER ARE SUFFICIENT AND VALID.
WE ALSO ARGUED THAT THE REGULATORY BURDEN ZRA WAS GIVING ITSELF WOULD IMPEDE THE SMOOTH FACILITATION OF TRADE AND EFFICIENT HANDLING OF TRANSACTIONS.
IN ADDITION, WE HAVE, LIKE EVERY OTHER SECTOR, ON 31ST JULY 2014, MADE PROPOSALS FOR AN AMENDMENT TO RULE 18(1) (b), AS PART OF OUR SUBMISSION ON THE MINING SECTOR NATIONAL BUDGET PROPOSALS FOR 2015 AND ALSO THE 2015-2017 MEDIUM EXPENDITURE FRAMEWORK.
The Chamber of Mines of Zambia will host a Health, Safety and Environment Conference on 10th and 11th July, 2014.
This event is supported by various organisations.
Vedanta Resources Plc is gearing up to spend $280 million at its Konkola Copper Mines (KCM) unit in Zambia, a move that will increase production output by more than a third by 2017.
“We have reinvested all of our earnings back into the company. This has supported the creation of 5 000 new construction jobs and in the meantime, salaries at KCM have more than doubled in real terms,” said Vedanta CEO Tom Albanese.
The Konkola mine has made $2.3 billion of capital investments in the past nine years while paying $73 million in dividends. The flagship project provides access to one of the largest high-grade ore-bodies in the world.
The company, which is owned by Indian billionaire Anil Agarwal, also agreed to pay $111 million in debt settlement at the Konkola site, as well as provie a $400 million bank guarantee.
The $280 million investment by Vedanta comes as a bit of a shock. The company and Zambia, Africa’s second-largest copper producer, have a history of bad blood. The situation worsened last month when Agarwal was caught on camera discussing the low price he paid for Konkola and the profit it makes.
Zambia, which once revoked ex-Konkola CEO kishore Kumar’s work permit, is reportedly in the process of revising its mining laws, which could lead to significant future impact on the mining company.
Story by Mining Global.
VEDANTA is in Zambia for the long haul, says company CEO Tom Albanese.
Executives from First Quantum Minerals and Konkola Copper Mines (more…)
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