The Gov­ern­ment needs rev­enue, but the Bud­get mea­sures are counter-pro­duc­tive

Zambian Business Times - - MINING -

The Bud­get in­tro­duces a fur­ther fea­ture to the MRT regime, which no other lead­ing cop­per min­ing coun­try ap­plies. That is that MRT pay­ments will no longer be de­ductible against Cor­po­rate In­come Tax. This is in ef­fect dou­ble tax­a­tion, and takes no ac­count of the need for rein­vest­ment in ex­plo­ration and ex­pan­sion.’

The Bud­get in­tro­duces the no­tion of a non-re­fund­able Sales Tax, in re­place­ment of VAT, with­out pro­vid­ing any de­tail what­so­ever. Quite apart from the non-re­fund­able as­pect which will se­verely im­pact cost of min­ing, the financial un­cer­tainty is so great that banks are now un­will­ing to pro­vide fi­nanc­ing to all min­ers, big and small, with­out fur­ther clar­ity.

The ex­port du­ties that are in­tended to be ap­plied to gold and gem­stones will hit emerg­ing and es­tab­lished op­er­a­tions alike. In fact, they will have the ef­fect of putting le­git­i­mate op­er­a­tors, many of whom are Zam­bians, out of busi­ness.

The in­tro­duc­tion of an im­port duty on con­cen­trates, com­bined with sales tax, will ren­der im­ports un­eco­nomic, and par­tially shut down the Cop­per­belt’s smelters and re­finer­ies. This ini­tia­tive flies in the face of the gov­ern­ment’s ben­e­fi­ci­a­tion drive, and in one strike, de­stroys the po­ten­tial for Zam­bia to be­come a South­ern African value-ad­di­tion hub. Zam­bia’s fi­nance min­is­ter, Mar­garet Mwanakatwe, opened her maiden bud­get speech on 28 Septem­ber 2018 by recog­nis­ing that Zam­bia has a ma­jor poverty chal­lenge. While eco­nomic growth has been rapid in re­cent years, it has not been in­clu­sive enough to di­ver­sify the econ­omy and pro­vide jobs for the mil­lions of Zam­bians that are out of work.

Mwanakatwe stated that the an­swer to this chal­lenge was to en­cour­age the pri­vate sec­tor to ‘invest, in­no­vate and cre­ate jobs.’

She recog­nised that this meant that the gov­ern­ment would have to ad­dress its debt prob­lem and stop spend­ing too much. Cred­i­bil­ity on this front is in short sup­ply, how­ever, with the gov­ern­ment hav­ing spent 18 per­cent more in the first half of 2018 than what it had bud­geted. The debt stock – the to­tal amount that the coun­try owes to its ex­ter­nal debtors – is now val­ued at $12.5 bil­lion (ac­cord­ing to the Econ­o­mist In­tel­li­gence Unit). The gov­ern­ment puts the fig­ure at $9.4 bil­lion, a sig­nif­i­cant dif­fer­ence in an econ­omy worth only $25 bil­lion. Pri­vate sec­tor con­sump­tion is set to grow by 1 per­cent this year, and the econ­omy re­mains heav­ily reliant on min­ing as its only se­ri­ous source of for­eign ex­change rev­enue.

Mwanakatwe’s gov­ern­ment clearly recog­nises the im­por­tance of min­ing to the Zam­bian econ­omy. Cop­per ex­ports ac­count for 80 per­cent of all mer­chan­dise ex­ports and have earned $3.5 bil­lion this year al­ready.

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