Mines’ tax payments ‘sucking’ forex, says expert

THE payment of taxes, over and above mineral royalties by mining companies in dollars has sucked foreign exchange supply from the open market causing imbalances on the supply side.

This aspect, coupled with demand surges, has weighed the exchange rate.

This is according to the Kwacha Arbitrageur Magazine Chief Macro Business Strategist, Mutisunge Zulu. In June this year, the Zambia Revenue Authority wrote to all mines to remit all taxes in dollars and directly to the Central Bank to shore up foreign exchange reserves.

But Mr Zulu said the move had sucked foreign exchange supply from the open market causing imbalances on the supply side, which coupled with demand surges, has weighed the exchange rate.

He explained that the Kwacha had this year to date suffered a 40 percent valuation loss as structural imbalances in the foreign exchange market had caused currency sell-off pressure.

He said this in the latest Kwacha Arbitrageur Report on “Budget Analysis and Debt Note.”

Mr Zulu also said the increase in inflation rate had contributed to the weighed to offset the effects of falling food prices. “This is evidenced by a dollar liquidity backlog exacerbated by uneven and inequitable allocation of foreign exchange at the expense of agriculture input demand,” he said.

Meanwhile, Mr Zulu said some of the tax adjustments announced in the 2021 national budget such as scrapping of import duty on copper concentrates would benefit the Zambian mining industry. Mr Zulu said this had for years hampered smelting business, which was driven by Mopani Copper Mine, Konkola Copper Mine and Kansanshi Mine.

“With increased in production in the Democratic Republic of Congo – DRC which is north of 1.2 million metric tons, Zambia stands to benefit more because of current unutilized smelter capacity which will help most mines meet contribution especially at a time when some face increasing production challenges,” he said.