7th October, 2019
Issued by the Zambia Chamber of Mines
For immediate release
Our forecasts remain unchanged, says Chamber of Mines
Chamber welcomes the rejection of Sales Tax, but regrets a missed opportunity to put the industry back on the growth path
The Government deserves “enormous credit” for its decision to put an end to the proposed Sales Tax, Chamber of Mines Chief Executive Officer, Sokwani Chilembo said today.
“The mounting evidence showed that Sales Tax would have caused severe damage to our economy, and so its removal was clearly in the national interest. But although this was the right decision, that did not make it an easy decision. The Government therefore deserves enormous credit for its action. It is unhelpful that certain commentators have tried to portray it as a capitulation; politicians need to have the political space to review decisions where the evidence supports it. This kind of language makes it unnecessarily hard for them to do so,” said Mr Chilembo.
The Chamber also praised the forthright and positive approach of the Minister of Finance to the issue of VAT refunds.
“We welcome the Honourable Minister’s firm public commitment to rectifying the VAT refunds issue. The first step must be to start refunding VAT on a normal month-to-month basis, so the refunds do not continue to increase as they have done over the last few years. We also look forward to engaging with the Minister and his team on a timetable for repayment of the full arrears owing to the industry,” said Mr Chilembo.
However, the Chamber of Mines was dismayed that no action was taken to revise the 2019 mining tax regime, despite there also being evidence to suggest that it is reducing tax revenues, rather than increasing them.
“Since January this year, Zambia has had – by a long way – the highest mining tax burden compared to other mining countries. For every Kwacha made in profit, between 86 ngwee and 1 Kwacha 5 ngwee is paid over in tax. Depending on the price of copper, mines could indeed end up paying more in tax than they actually receive in profit. Because of this extraordinary squeeze, there is not enough left to invest in operations, or to expand them. That is why we are seeing such a big drop in production this year.
The shrinkage in the industry, both in production and profits, means that although tax rates are high, actual tax revenues will fall. We estimate that the government will receive this year approximately $80 million less, in royalties and profits tax, than it did in 2018 – and some $140 million less than it could have received if it had not made these extreme changes.”
According to the Chamber, the 2020 Budget has not only failed to give respite from the tax burden, it has added to it. The effect of additional tax measures will be to increase the cost of capital equipment – the ‘big ticket’ items – by 10 per cent, and the cost of consumables, such as spare parts, by 16 per cent.
“Following this Budget, and the impact that it will have on the cost profile of Zambia’s mines, we maintain our prediction of a 100,000-tonne reduction in copper production for this year, with a further commensurate drop in 2020. Now that KCM is effectively in State hands, the Government will have first-hand experience of the costs pressure the sector is under. They can therefore act on what they are seeing, not just what we are telling them. We hope they do so before irreparable damage is caused,” concluded Mr Chilembo.