Analysis

STAKEHOLDERS DEMAND REMOVAL OF MINES’ DOUBLE TAXATION

By Natasha Sakala
 
STAKEHOLDERS have reiterated calls that government removes the non-deductibility of Mineral Royalty Tax (MRT) payments, which result in double- taxation on mining companies to help encourage investment
in the sector and revive Zambia’s economic growth.
And economist Professor Oliver Saasa says government’s decision not to remove the non-deductibility of MRT in the 2021 national budget would  delay Zambia’s economic recovery given the huge investments mining companies will defer.
                   Speaking during the Centre for Trade Policy Development (CTPD) 2021 national budget analysis, Zambia Chamber of Mines chief executive officer Mr Sokwani Chilembo warned that government’s resistance not to remove the non-deductibility of MRT payments, resulting in double-taxation on mining companies, would stagnate Zambia’s economic growth because mining investments would vanish to other more tax-friendly jurisdictions. So far, Glencore Plc, Mopani’s parent company, has signaled their intention to divest away from Zambia, while FQM’s Kansanshi has delayed its US $1 billion Sulphide Expansion and Life of Mine Extension project.
“If the government can move quickly to carry this out, then we have a chance of still being in that Top 10 (of global copper producers) and of still being a relevant copper jurisdiction and of
restoring ourselves to the kind of growth that can then percolate. And the MRT is not just for the apex miners; remember, gold, because of its very nature as a medium of exchange, means that if you do
Stakeholders demand removal of mines’ double-taxation in terms of export earnings, but as an employer. But also, what happens there, especially in terms of export receipts, foreign exchange… has a ripple effect across the board in terms of foreign exchange and the value of the kwacha relative to the other convertible currencies. We allow the situation to deteriorate within the mining sector for far too long, the ripple effect will be too ghastly to contemplate!” he cautioned.
Meanwhile, Prof Saasa also urged government to address Zambia’s huge debt stock, which had hit around
US $18.5 billion, as a means to expedite economic recovery. “The debt challenge is the ‘elephant in the room.’  The issue that the debt challenge not have a competitive regime in-country, gold will move and
manifest where the regime is favourable. Your production will remain underground; you cannot do gold (mining) with a double-taxation on mineral royalties, and to diversify, you need capital, capital will not  ow where there is double- taxation,” Chilembo told stakeholders at the Sarovar Hotel in Lusaka, Friday
evening. “  Double-taxation amount is inconsequential compared to the benefits of the growth that we are talking about because it links into infrastructure. But if mining is not growing, you have a much harder time securing  finance for the same. And when you add that opportunity to the mining opportunity we’ve
just talked about, you are talking about 20 per cent of GDP.  It’s been three years of talking about these things, now is time for us to begin to act because this a diminishing opportunity. If we don’t, then, our future we’ll be nowhere near in the top 10 copper producers of the next 15 years!”
                He explained that mining companies still remained the biggest sources of contributors to Zambia’s economic growth. “…And even though it’s a very qualitative measure, it actually very vividly demonstrates a risk of declining fortunes if we do not stimulate growth now.
And we don’t have to do so from domestic resources; if we provide this stimulus, the (mining) industry can
go out, mobilise these funds at commercial rates because they will be affordable and we can get this economy growing in two ways: 1. Presently, the organic growth of the industry is very weak, we are low single-digit, which cannot translate to anything close to the contribution to GDP growth that we require
to swing positive to 1.8 (percent) from the -4.4 (per cent) where we are now,” Chilembo said. “You give the MRT, the industry has an incentive to probably double that to a per cent. If the industry is drawing down on the 10 percent of GDP in investment commitment at a rate of probably two per cent a year, you have a capital formation opportunity to augment that growth! You can get half-way there with mining; this is the
detail, which is required to gain the confidence of the international community to enable our country get
a lifeline and path back to growth out of this COVID-19 scenario.”
And Prof Saasa, the Premier Consult chief executive officer, bemoaned government’s decision not to
remove the non-deductibility of MRT in next year’s budget as it would delay the country’s economic recovery given the huge investments mining companies will defer.
“There are many challenges where government has chosen to remain deafeningly silent; the major
driver of our foreign exchange: the mining sector. I realise that the Hon. (Finance) Minister remained very silent.  The removal of the tax on (copper) concentrates, five per cent, you will recall that that was removed last year, suspended, it’s just a confirmation that we are continuing. But the major drivers of investment
and the encouragement in terms of hospitability of the environment to invest speaks to areas within the mining sector that government is still silent on, one of them is the issue of the non-deductibility of the (Mineral) Royalty,” Prof Saasa said. “So, if there’s a message that I can send to the Hon. Minister of Finance looking into the prospects for the future of Zambia in terms of growth, Hon. Minister, please! the mining sector accounts for 70-80 per cent of our export receipts. Please, Hon. Minister, not only should we have a hospitable fiscal regime within the mining sector, but where there are problems within the mining sector, please, let’s move to and corrective action like yesterday!”
He cited the challenges being faced at troubled mining giants Konkola Copper Mines (KCM) and Mopani
Copper Mines (MCM) as a major threat to the country’s economy.  “What’s happening with Mopani, at KCM, without taking sides, there are definitely legitimate positions by government, but I have also heard legitimate positions from the other side. What is important is to allow yourself to go through dialogue, and
the solution because we are playing around with a sector that is so strategic, not only brings is fundamental to the extent that if we don’t manage it, we’ll remain unable to be able to mobilise the sort of resources, whether Foreign Direct Investment (FDI) or just development resources from the likes of the IMF,
World Bank…and I can tell you, even bilaterals will be reluctant to move forward and support us if, in terms of the fiscal management and the challenges, do not give the level of comfort those partners want to see for them to come in. Let’s have a clear action plan, especially with respect to debt management,” advised Prof Saasa.
Earlier, during a presentation, CTPD senior researcher for public  finance Dr Gabriel Pollen called for
macroeconomic stability to foster economic recovery and return Zambia back on a path of debt sustainability.
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