A range of industry observers have welcomed the release last week of a new education booklet by the Zambia Chamber of Mines, entitled Taxation and Mining Investment in Zambia.
They describe it as a good initiative which will help to raise awareness of a subject that is of critical importance to the Zambian economy.
Mike Phiri, tax partner at professional services firm KPMG, said: “The booklet is a great initiative, and makes the Chamber of Mines a leader among industry players on disseminating information about their industry.”
He said it should help lead to a better understanding of the link between taxation and mining investment, not just at government and policy level, but also among various stakeholders.
Yusuf Dodia, Chairman of the Private Sector Development Association, said: “It is a good document which was well constructed, and kept short enough for readers to embrace the key messages. It is a good mechanism to initiate a dialogue on the issue of taxation and the development of the mining sector in Zambia.”
On World Bank projections cited in the booklet showing that growth in Zambia’s copper production will start to slow after 2019, Dodia said: “This may be a key departure point which should compel the government to consider mechanisms for diversification away from copper mining towards other sectors such as tourism, agriculture, manufacturing and services.”
Siforiano Banda, Chief Executive of the Extractive Industries Transparency Initiative (EITI), welcomed the booklet and said it would lead to a better understanding of the subject of taxation and mining investment.
“There is not enough knowledge among players,” he said. “There is a need for government and industry stakeholders to always dialogue on matters of policy. If possible, the Ministry of Mines should be giving weekly appraisals to fellow cabinet ministers on developments in the sector, so that they are kept abreast and can assist in redirecting the future of the country.”
Musonda Kabinga, economist at the NGO Action-Aid said it was good of the Chamber of Mines to have released the booklet, as it gives an overview of the mining sector in terms of investment and taxation.
Joseph Chewe, General Secretary of the Mineworkers Union of Zambia (MUZ), said: “The Chamber of Mines has come up with another great publication on taxation and mining investment in Zambia. The first one, on Mineral Royalty Tax, was simple and easy to understand.”
He said it was good of the Chamber to release such “informative and educative” booklets, as they help to close knowledge gaps and inform the Zambian public.
“There is a need for such information-sharing mechanisms to continue so that government and policymakers arrive at policymaking and tax regimes from a well-informed background,” he said.
Msoni Mtwalo, deputy national coordinator for Publish What You Pay, a body which promotes transparency in the extractive sector, said: “The booklet is quite useful in that it gives an overview of the mining sector from the industry’s perspective.”
However, he said it would prove less useful for people outside the sector as it does not break down the implication of the various mining taxes, and doesn’t state the basis on which the royalties cited are calculated.
On the question of whether there was sufficient understanding of the topic at government and policy level, Mtwalo said: “Definitely not – otherwise we would not have had six different tax regimes in the past eight years.”
Taxation and Mining Investment in Zambia is free to the public, and is available in hard copy from the Lusaka office of the Zambia Chamber of Mines. It can also be accessed in electronic form on the Chamber’s educational website www.miningforzambia.com.
Acting Chief Executive Officer
Zambia Chamber of Mines
Zambia needs a more competitive mining tax regime to entice both new and existing investors to invest billions of dollars into the mining industry and boost flagging production, says Nathan Chishimba, president of the Zambia Chamber of Mines.
“Last Friday’s budget speech by Finance Minister Felix Mutati aims to restore financial stability to the Zambian economy and lay the foundations for long-term economic growth – and economic growth depends on investment,” Chishimba says.
In a press statement publicising the release of a new report by the Chamber, Taxation and Mining Investment in Zambia, Chishimba says despite recent welcome changes to Mineral Royalty Tax (MRT), Zambia’s overall effective mining tax rate remains among the highest in the world.
“How is it that we have ceded our long-held position as Africa’s leading copper producer to the Democratic Republic of Congo (DRC). A key part of the answer has to be investment incentives and policy stability. The DRC’s tax regime is not only more investor-friendly than Zambia’s, but has also been much more stable. This has encouraged long-term investment, which has boosted production.”
Chishimba says the importance of new investment in Zambia is all the more timely, as the World Bank has projected that growth in copper production will start to slow after 2019. “Along with a decline in production, there will be a decline in government revenue, mining industry jobs and foreign exchange. However, production levels can increase if there is a new wave of investment.”
Taxation and Mining in Zambia quotes research showing that mining investment in Zambia benefits not just the mining industry but the wider economy too, through what is known as the ‘multiplier effect’. It means mines procure supplies from local businesses, and employees spend their wages in the economy, stimulating more business creation and more employment. A World Bank study on FQM’s Kansanshi Mine in Solwezi found that for every direct employment opportunity created at the mine, a further five were created in the wider economy.
The report also shows how levels of mining investment and national economic growth are inextricably linked. From 1997, investors in the newly re-privatised mining industry collectively poured more than $12 billion into modernisation, expansion and new greenfield ventures. Both copper production and economic growth recovered in 2000 and accelerated in the years thereafter. Importantly, this growth started before the copper price began to recover in 2004, proving it was the surge in investment which turned around the economic fortunes of the country.
The report goes on to cover the challenges of designing a mining tax regime which encourages continued investment – or at least does not discourage it.
The report considers the various phases that a typical mine goes through, from exploration and development to production and closure, and what incentives are necessary to encourage the development of resources through the various stages.
For example, during the exploration phase, when there is no income, the tax regime should ideally allow mines to defer losses to later years and write them off against future profitability. This incentivises mines to continue beyond exploration to actual mine construction.
“When taking business decisions, mines will respond to the nature of the tax treatment in place,” the report says.
Download Booklet – Taxation and Mining in Zambia
Issued by Zambia Chamber of Mines
Acting Chief Executive officer
This week the Chamber of Mines issued a report entitled “A guide to understanding Mineral Royalty Tax (MRT)”, and made it available free of charge at our offices, and as a download on our website.
It comes barely three weeks after the government announced its intention to unveil a new, more accommodating MRT regime based on a sliding scale which varies with the copper price. We welcomed this news, and commended the government for trying to create a more responsive tax regime, that takes some account of the unprecedented pressures currently facingthe industry.
So why is the industry releasing this booklet? Well, the answer is simple. MRT is a hot topic of public debate, but few people really understand the concept, or how it actually works.
This had led to the expression of opinions that although sincerely held, are nevertheless damagingly inaccurate. For instance, it is commonly expressed that any reduction in taxation rate is, firstly, a result of undue arm twisting by the mining industry, and secondly, will have a negative impact on Zambia’s development (i.e. the Government will have to borrow more, to fill the gap). These are truly harmful fallacies that betray a lack of economic (and political) understanding, and frame the relationship between the industry and government as an adversarial ‘zero sum’ game, where one must lose if the other is to gain.
Understandably, people feel strongly about our nation’s resource endowment, but the combination of strong emotion and limited information is a recipe for disaster.
Constructive debate and criticism requires a minimum degree of shared knowledge. How can you and I argue the respective merits of two football teams, unless we have a shared understanding of how the game is played?
To date, the mining industry has not done enough to engage with the public, to impart information and education on the key industry and wider economic issues facing Zambia.
This booklet is therefore part of a wider programme of initiatives to provide insight and information to the Zambian public on the key issues. We started this process in December, when we held a media conference on the current commodity crisis and its impact on the Zambian mining industry. There are further initiatives planned for the months to come on all mining issues, not just tax. We believe this will lead to a higher level of debate and public awareness, which can only be a good thing.
As is often said, mining is a long-term game. In the right environment, mining operations can be productive over many decades. The ‘right’ environment is a combination of stable and good governance, supportive investment, strong operational management and a prosperous, peaceable society. The long-term needs and interests of the mining industry are therefore entwinned with those of Zambian society.
We firmly believe that the diversification of Zambia’s economy beyond copper mining – a long-term imperative for our society – can only be achieved if the mining industry is nurtured, so that it may be a strong springboard for future growth, rather than a piggy bank to be drawn on until empty.
For Zambia and its mining industry to prosper in the long-term, certain steps must be addressed now. There is an urgent need for new investment in the mining industry, to improve or expand existing mining operations, and to open up new reserves.
A number of major investments have been on hold since 2012; unless these are urgently encouraged, the industry will commence an inevitable and irresistable decline, the effects of which will be felt from around 2019 and for many years thereafter.
This decline can only be arrested if there is radical improvement in the stakeholder relationship which feeds in to the creation of stable, good mining policy and governance structures.
This is not just a responsbility of government. For our part, we recognise that there is a need for far greater transparency, and regular stakeholder engagement, than has hiterto been the case. This booklet is just one proof of our intent.
Mr Nathan Chishimba is President of the Chamber of Mines of Zambia.
‘A Guide to Understanding Mineral Royalty Tax (MRT)’ can be downloaded from the Chamber of Mines website at:
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