Lusaka (WEDNESDAY, 25th March 2015) – His Excellency Mr. Edgar Chagwa Lungu, President of the Republic of Zambia has directed the Minister of Finance and Minister of Mines and Minerals Development to effect changes to the 2015 Mineral Royalty Tax by 8th April 2015.
In letters to the two ministers today, President Lungu stated that after receiving submissions from individual mining companies and the Chamber of Mines, he has noted that the new tax regime poses a challenge to some mining houses. The President also noted that some mines are high-cost while others are low-cost operations.
“Obviously the mining industry has been affected by copper prices on the international market. It is clear that this unfavourable economic trend globally has been mainly on account of weak global demand for copper,” the Head of State said.
“I wish to take this opportunity to reiterate my government’s resolve to continue putting dialogue at the centre of our governance systems. Dialogue between my government and the mines shall continue.”
The President emphasized that government will always be amenable to progressive ideas that will assist in addressing challenges in the mining sector. The President notes that these challenges cannot be resolved overnight but he is confident that these matters are not insurmountable.
“I have therefore directed the Minister of Finance and the Minister of Mines, Energy and Water Development to review the mining tax regime and make recommendations to Cabinet by 8th April 2015,” the President directed.
Among the options the President has asked the ministers to consider, are the following:
The President also directed that the ministers should also use the current legislation and administrative procedures to ensure that mines that are facing severe challenges are assisted.
The Head of State has meanwhile called on all individuals and corporate citizens to comply with the existing tax laws.
Special Assistant to the President (Press & Public Relations)
Mr Speaker, I wish to thank you for according me this opportunity to brief the House and the Nation at large on the 2015 Mining Taxation Regime which is a topical issue in our country.
Sir, despite Zambia being endowed with vast mineral resources, the country has not realised maximum benefits from the sector’s potential to support growth and enhanced socio economic development. This is against the backdrop that the sector has been experiencing high copper prices in the recent past. It is worth noting that the various changes in tax policies in the last 10 years with a view to optimise benefits from the mines have not yielded the desired results. The House may wish to note further that the contribution of the mining sector revenue as a percentage of GDP remains low at 4 percent. Similarly, the contribution of the mining sector to the national budget has remained minimal even after the Government doubled the mineral royalty rate from 3 to 6 percent.
Sir, the PF Government is cognisant that our mineral wealth is non-replenishable. It is therefore our responsibility as leaders of today to ensure that the exploited copper and other mineral resources contribute to development so as to ensure prosperity for future generations. Government is fully aware and does appreciate that the gestation period for mining companies to reap gains from investment is long. This notwithstanding, there is need to have tax policies that guarantee a win-win situation by tackling the inherent weaknessthat existed in the mining tax regime prior to 2015.
Mr. Speaker, before the introduction of the 2015 tax regime, the taxsystem was vulnerable to all forms of tax planning schemes such as transfer pricing, hedging and trading through “shell” companies which are not directly linked to the core business.Sir, it has been a challenge for the revenue administrationto detect and abate suchpractices.
Further, provisions on capital allowances and carry forward of losses eliminated potential taxable profits. Mr Speaker, the tax structure was simplyillusory as only two mining companies were paying Company Income Tax under the previoustax regime as most of them claimed that they were not in tax-paying positions.
Mr Speaker, it has therefore became imperative for the Government to restructure the mining tax regime by replacing the profit based tax system with a simple mineral royalty based regime that is final so that we insulate ourselves against tax planning schemes which are structured to wipe out taxable profits.In coming up with the 8 percent and 20 percent mineral royalty rates for underground and open cast operations respectively, the Government took into account the different cost structures for underground mining and open cast mining. Sir, I am eternally obligedto members of this august House for having overwhelmingly supported the Bill for us to proceed with the tax changes.
Mr. Speaker, we have however, received submissions from the Chamber of Mines and some of the mining companies that the new tax regime for the mining sector may pose sustainability challenges to the sector given the high cost of production for some of the mines. Sir, it is clear that the unfavourable course of events in the global economy, particularly the weak demand for copper from China coupled with the Eurozone debt crisis, have occasioned a slump in copper prices to their lowest in five years. In the event that this outlook persists our growth prospects will be dampened.
Mr Speaker, Government will pursue sector specific tax policies, and will not be persuaded to put in place tax laws to favour individual companies in order to avoid distortions. Sir, I wish to inform the nation that the Mines and Minerals Development Act contains mitigation measures which holders of the mining rights may wish to pursue on the perceivedchallenges the 2015 mining tax regime may present.
Sir, Government is committed to promoting investment and efficiency in the mining sector. The Government has planned to address policy matters while all operation matters will be dealt with by the specialised agency Zambia Revenue Authority which is responsible for tax administration.
Mr Speaker, regarding concerns over the application of the Value Added Tax (General) Administrative Rule Number 18 on proof of export requirements, I assured this House that it was Government’s desire to expeditiously and amicably resolve the concerns surrounding non-compliance with the requirements of Rule 18.
Sir, I am pleased to inform this august House that as a listening Government we have considered the submissions from the Chamber of Mines and we have proceeded to realign the provisions of Rule 18. This will ensure that mining companies and all exporters are not unduly encumberedby administrative rules and in the process affecting their cash flows and operations.
Mr Speaker, this is a clear demonstration of our unfettered commitment to ensuring that regulations are not onerous but supportive to investment and business development. In the same breath, we are confident that mining companies will remain resolute in complying with tax rules.
Mr Speaker, rationality and efficacy demand that our solutions are duly balanced. I therefore, would like to assure thenation through this august House that the Government is committed to ensuring that the tax system is not burdensome but conducive to tax compliance and beneficial to the country.
Mr Speaker, the Government remains open to dialogue and will welcome progressive ideas on matters relating to development of the country inclusive of those pertaining to taxation. This will be within the spirit of partnership between investors and the Government.
Mr Speaker, I thank you.
Lusaka, Tuesday, 3rdFebruary 2015—His Excellency Mr. Edgar Chagwa Lungu, President of the Republic of Zambiahas directed the Zambia Revenue Authority (ZRA)Commissioner-General Mr. Berlin Msiska to expedite dialogue with mine owners and promptly resolve the impasse over the new mining tax regime.
President Lungu issued the directive after he addressed a special session of Cabinet to consider the impasse over the new mining tax regime and the outstanding VAT refunds for mining companies.
The President said he wants an amicable settlement that must end in a win-win outcome for both the mining companies and the people of Zambia.
On the VAT the status of the VAT refunds, the ZRA Commissioner-General and the Minister of Finance Hon. Alexander Chikwanda reported that a statutory instrument to regulate the payment of refunds would be ready in a matter of days to deal with future payments.
The Head of State has directed that in the light of the existing legal dilemma regarding claims that have already been submitted, new negotiations must therefore be opened to address mechanisms under which any payment would be settled.
“I want to see increased dialogue and increased flow of information that infact we have been talking to the mine owners over these matters. We have to make this clear so that we can forestall the falsehoods that some people are peddling to poison public perception regarding this matter. The ultimate aim is to protect jobs and keep mines profitable at the same time. We must also maintainthe country’s right to collect due taxes,” the President said.
The special session of Cabinet comprised Her Honour the Vice-President Mrs Inonge Wina, Hon. Chikwanda,Minister of Justice Hon. Dr Ngosa Simbyakula and Minister of Commerce Trade & Industry, Hon. Margaret Mwanakatwe. The Minister of Mines will join this committee of ministers tasked to tackle the mines tax impasse. The ZRA Commissioner-General, Secretary to the Treasury Mr Fredson Yamba and Ministry of Finance Permanent Secretary Mr. Felix Nkulukusa were in attendance.
The Minister of Finance emphasised that government was actively engaged in dialogue with the mines and there is therefore no cause for panic and blackmail from any quarters. “This matter is under discussion and I will be addressing the issue at various fora this week when I visit some mines on the Copperbelt this week,” he said.
Meanwhile, President Lungu has reverted Dr. Bwalya Ng’andu to the Bank of Zambia as Deputy Government-Operations. Dr Ng’andu has been on secondment to the civil service as Permanent Secretary for Mchinga Province.
“In January last year, you were reassigned to Government as Permanent Secretary. Just as at Bank of Zambia, you have of Deputy of Governor (Operations). This is a critical position especially at a time when we face intractable challenges in both the domestic and global economies. There is a compelling need to use monetary policy to stimulate the economy and it cannot be business as usual,” the President says in a letter to Dr Ng’andu.
“Our government’s proclaimed intention is to lower the interest rates in order for small businesses to access bank facilities has proved futile because the Central Bank has persistently been tightening even when the economic fundamentals suggested the opposite. It is my sincere hope that you will reinforce the Governor and initiate meaningful dialogue with commercial banks to close some avoidable loopholes that induce injurious outflows of our meagre foreign exchange.”
SPECIAL ASSISTANT TO THE PRESIDENT
(PRESS &PUBLIC RELATIONS)
19 January 2015-Over half of Zambia’s copper production is currently in a loss-making position following a consistent decline in the international copper price. As of 14thJanuary, 2015, the base metal was trading at US$5,353.25/tonne, its lowest since July 2009 according to Bloomberg.
Zambia Chamber of Mines, Economist Mr Shula Shula says, this price slump, in addition to structural factors, legacy issues and a new tax regime, which imposes from 6 per cent, a 20 per cent Mineral Royalty Tax on open cast mines and 8 per cent on underground mines, will severely penalize the vast majority of Zambia’s mining operations.
“Profitability is derived from total revenue less total costs. Most of Zambia’s mines are high-cost operations, significantly higher than other copper-mining provinces in the world. At the current copper price, nine out of eleven of the country’s large mines (both open cast and underground) is uneconomic”, Mr Shula said.
Considering that the mining industry accounts for over 86 per cent of Zambia’s Foreign Direct Investment and approximately 80 per cent of exports, this is alarming for the state of the country’s economy.
Government’s taxation of the mining industry, let alone any industry, must take into account two strong principles;
Government’s introduction of the new tax regime is severely contrary to both principles. An excessive tax burden on the mining industry, without taking into account the cost of production and unpredictability of the copper price trend, will inevitably lead to mine closures in both the short and medium-term. This will in turn lead to lost revenue for the country. At the current copper price, nine out of eleven mining operations are loss-making, even under the 2014 tax regime.
The trend in copper price is, has been and will most likely remain highly unpredictable. This is because copper is a base metal, heavy, plentiful and cheap when compared to precious metals such as gold and silver. As such it is purchased by consumers whenrequired, making it difficult to speculate on future prices. This needs to be understood when effecting any policies or legislation that could impact the industry in some way.
The downward trend in copper pricing shows that Zambia’s industries are very sensitive and could easily become defunct. The current precipitous drop will cause mines to scale back on production. Contrary to the perception that the proposed regime will be simple to administer, it will be very complex as mines have open pit, underground and processing operations sometimes on the same site. At declining copper prices and a new tax regime, Zambia will move into unexplored fiscal territory.
Government must therefore reverse its decision to introduce the new tax regime that poses a higher mineral royalty as a final tax and instead, institute dialogue with all stakeholders to come up with an equitable fiscal policy which is consistent with promoting mining investment and generating adequate revenues for the treasury on a sustainable basis.
Zambia Chamber of Mines
An analysis of the Government of the Republic of Zambia’s 2015 Budget, endorsed by Parliament, reveals the threat of wide-ranging, unintended ramifications for the Country’s mining industry, including the suspension of certain mining operations; significantly affecting jobs, inward investment and reduced Government revenues. Furthermore, local communities will no longer benefit from the corporate social responsibility initiatives and support programmes of affected operations.
The Zambia Chamber of Mines and its members are committed to working with the Government to find solutions that will allow them to sustain operations, protect jobs, support local communities and pay appropriate taxes. Therefore, it is of great regret that as a direct result the passage of the 2015 Budget through Parliament, Barrick Gold Corporation has announced that it will initiate procedures to suspend operations at the Lumwana Copper Mine. Lumwana is a major-driver of the North-Western Provincial economy, purchasing close to US$400 million in goods and services from Zambian suppliers in 2014 and supporting a range of education, literacy, health care and community projects. Lumwana’s suspension of operations will also impact adversely on the operations of the three smelters on the Copperbelt which heavily depend on the Lumwana copper concentrates.
The Zambia Chamber of Mines remains deeply concerned about the 2015 Budget, most notably:
The Zambia Chamber of Mines has met with Ministry of Mines, Ministry of Finance and Zambia Revenue Authority technocrats on a number of occasions over the past three weeks. These positive meetings have served to produce a useful dataset which allows both industry participants and Government to benchmark the current state of the Zambian mining sector. It is this benchmark data that this Press Release draws upon.
Concerning the current tax system, the Zambia Chamber of Mines has made the point that Zambia already possesses the highest base-metal tax regime in the world – almost double that of Chile. This was borne out by the International Council on Mining & Metals 2014 report “Enhancing Mining’s Contribution to the Zambian Economy and Society”; this report was endorsed by both Government and the Chamber of Mines.
The proposal to introduce significantly higher mineral royalty taxes from 6% to 8% for underground mines and to 20% for open pit mines with no consideration of a company’s profitability, moves Zambia from a best-practice, two-tiered taxation system into unchartered territory by introducing a single-tier, royalty-only tax system – the only jurisdiction of this type in the world.
Unintended Financial and Social Consequences
Furthermore, the Zambia Chamber of Mines is concerned that the imminent implementation of the 2015 Budget measures may make a number of other operations economically unviable, potentially leading to further mine closures. Of particular concern is the postponement and potential cancellation of major expansion projects such as:
Impact on Jobs
If the proposed Mineral Royalty based single tier tax system is implemented, the suspension of Lumwana could see the loss of around 4,000 direct jobs. The Zambia Chamber of Mines estimates that in 2015 alone, as a direct result of the introduction of the 2015 Budget, mine suspensions and the postponement of major capital projects will lead to over 12,000 direct job losses.
This will have a significant, detrimental impact on those towns and communities of the Copperbelt and North-western Province who benefit from the significant investment in economic and social welfare by the mining sector.
Significant Impacts on Production and Loss of Export Earnings
The Zambia Chamber of Mines’ analysis estimates that production losses in 2015 will exceed 158,000 tonnes of copper; more worryingly, over the next 5 years lost production will exceed 1,100,000 tonnes of copper. Furthermore, Zambia stands to lose over US$1 billion of export earnings in 2015, and a staggering US$ 7 billion over the following 5 years; this equates to around 30% of Zambia’s GDP.
Government Revenues Reduced
Whilst the 2015 Budget does not contain any detail on the impact of the introduction of the higher mineral royalty rates, the Government has forecast that the proposed regime will raise ZMW1.7 billion in 2015. It is clear from the Zambia Chamber of Mines’ own analysis that the Budget has not factored-in the impacts of mine closures and suspensions. Once accounted for, the Chamber estimates that in 2015 alone the Government will raise approximately US$ 320 million less taxes than forecast in the 2015 Budget proposal; and US$115m less than would have been collected if the changes had not been made.
Foreign Direct Investment Impacted
The mining industry represents more than 86% of Zambia’s Foreign Direct Investment. This investment is critical for increased capacity and production levels in the mining industry, and is fundamental to the development of growing economies such as Zambia. However, the introduction of the higher mineral royalty tax rates is forecast to halve the Foreign Direct Investment associated with the industry.
The Zambia Chamber of Mines and its members urge the Government to undertake further consultations and conduct a thorough analysis to fully understand the serious financial and social impacts which will be caused by the introduction of the 2015 Budget in its current form. Whilst these consultations and analysis are conducted the Chamber of Mines recommends that the current two tier taxation system remains in place.
The 2015 Budget will adversely impact tens of thousands of lives, and we ask Government to pause whilst it reconsiders its implementation on 1st January 2015.
Zambia Chamber of Mines
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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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.
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