Mines to pay taxes in dollars

GOVERNMENT has directed the mining companies to remit all taxes over and above mineral royalties in dollars directly to the Bank of Zambia (BoZ).

The move which was effective June 4, this year was meant to increase foreign reserves which have dwindled to about US$1.4 billion.

Previously, only mineral royalty tax was paid in dollars since 2017 while the rest were being paid in Kwacha.

Value Added Tax (VAT) would however still be paid in the local currency.

The Zambia Revenue Authority (ZRA) wrote to all mining firms to remit all taxes in dollars and directly to the Central Bank, says the Kwacha Arbitrageur Magazine.

The Magazine explained that the move was meant to shore up foreign exchange reserves that had plummeted to decade lows.

Zambia’s foreign exchange reserves are currently at US$1.4 billion, representing 2.6months of import cover.

Key drivers of dollar demand in the Zambian market include Central Bank purchases for debt service purposes and shoring up of foreign currency reserve and energy demand for petroleum among others.

“Swift payments will require full disclosure of details in payment instructions. Settlement accounts of the Bank of Zambia held with foreign correspondent banks will be used for receipt of funds.“Correspondence to the mines prescribed that provisional income tax, annual company income tax, domestic and withholding VAT, withholding tax, customs duty, and excise duty and import value added tax will all be remitted in dollars effective 04 June at average central bank rates,” the Magazine said.

According to the Magazine, BoZ had implored various interventions to shore foreign exchange reserves to include payment of mineral royalty taxes in dollars.

It indicated that this was in addition to being the only off taker of alluvial gold from the states mining investment vehicle ZCCM-IH.

And an official from ZRA confirmed the reports explaining that the move was also meant to avoid any exchange losses and remove pressure on the Kwacha.

“We started doing that back in 2017 with mineral royalty taxes so basically it is to align the tax payments to their income and avoid any exchange losses and remove pressure on the Kwacha.

“So that is the decision that has been made and there is nothing sinister or illegal about it,” the source said.