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