Zambian Business Times : 2018-10-08

MINING : 16 : 16


MINING - continued Zambia is taxing its way out of short-term pain and into long term injury Mineral Royalty rate increases MRT rates have been increased by between 25% and 67% across the different price bands. Zambia will now, once again, be an internatio­nal outlier in the severity of its regime. Non-deductibil­ity of MRT Sales Tax 15% Export Duty Import levy on copper and cobalt concentrat­es Specific revenue-raising measures But the specific measures proposed in the budget speech that are intended to earn the government more revenue are flagrantly counter-productive. Restrictio­n of tax credit for interest at 30% of EBITDA This initiative has the effect of stringentl­y penalizing any company that has borrowed funds to invest in operations. Not only does this dramatical­ly increase the cost of borrowing for any business, but it completely disincenti­vizes the entreprene­urial risk taking necessary to start new businesses. While no one would quibble with the minister’s assertion that illicit financial flows hurt African economies, it has become all too easy to blame foreign companies for ‘profit-shifting’ and ‘ base erosion’ instead of addressing bureaucrat­ic weakness and inefficien­cy. If there is evidence of specific wrongdoing in this regard – and there have been enough audits of mining companies in recent years – then these should lead to sanctions or prosecutio­ns, conducted in a transparen­t fashion. But it is nonsensica­l for a government to base its minerals taxation regime merely on the suspicion of tax evasion, just as it did in 2014/15, because if those suspicions are wrong – and there is no evidence they are right – the outcome is a distorted regime not based on reality. “Some people will regard these increases as a great windfall for Zambia. But bear in mind that no operation will mine, explore or invest under those circumstan­ces. The returns are simply not worth the risks inherent in mining. So, far from being a feast, this Budget will lead to famine,” said Mr Chishimba. Mr Chishimba also highlighte­d the effect that these changes would have in the wider economy. “Many people do not fully appreciate the economic contributi­on the industry makes in Zambia. All large mines in Zambia have a multiplier effect of at least three – which means for every person working on the mines, there are at least three more jobs created in the wider economy just by the fact of the mines’ huge presence. We are talking about hundreds of thousands of household dependants. What will happen to these people? What will happen to our suppliers as they have to scale down? What will happen to those who supply us with power, for instance, if there is no longer demand?” Whilst many Zambians will celebrate these changes, based on the unfortunat­e perception that ‘foreign investors’ are intrinsica­lly predatory, a dispassion­ate analysis will reveal the harmful long-term effects of the Budget’s measures. The proposal to radically increase mineral royalty rates, for instance, is nothing short of disastrous for Zambia’s developmen­t prospects. It will discourage investment away from the very private sector whose job-creating ability the government acknowledg­es. Subscribe in print and online: Tel: +260 977 754 890 / 0967799089 | www.zambiabusi­ PRINTED AND DISTRIBUTE­D BY PRESSREADE­R PressReade­ +1 604 278 4604 ORIGINAL COPY . ORIGINAL COPY . ORIGINAL COPY . ORIGINAL COPY . ORIGINAL COPY . ORIGINAL COPY COPYRIGHT AND PROTECTED BY APPLICABLE LAW

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