PWC advises govt to be considerate when increasing mine taxes

PRICEWATERHOUSE COOPERS Tax expert Jyoti Mistry says the continuous increase in mining tax risks affecting operations of mines in the country. And Mistry says concentrating the revenue generation measures on the mining industry renders the Zambian economy highly vulnerable to movements in commodity prices and global economic conditions.

In her presentation on Zambia’s 2019 national budget analysis and outlook at Protea Hotel in Ndola on Monday, Mistry said government should be considerate when increasing taxes for mines.

“Additionally, mineral royalty tax will no longer be deductible as a cost for purposes of determining the taxable income. Whilst the majority of the mining sector will face an additional burden, companies that use the copper cathodes to add value will see a reduction in corporate income tax rate from 35 per cent to 15 per cent. It should be appreciated that a volatile tax regime is not conducive for long-term investment,” Mistry said.

“The impact on jobs, investor confidence and investment arising from the last spate of reactive changes to the mining tax regime between 2013 and 2015 should not be forgotten. It is also a great concern that the current pipeline of exploration projects has diminished significantly. Any disinvestment or curtailment of operations by these companies would have a significant impact on the rest of the economy.”

She said it must be appreciated that the Zambian economy was still highly dependent on the mining sector.

“Given the country’s difficult situation, government may have taken a calculated risk by concentrating the revenue generation measures on the mining industry. However, this is a precarious measure as it renders the Zambian economy highly vulnerable to movements in commodity prices and global economic conditions,” Mistry said.

She said the private sector was the main potential engine for economic growth in Zambia.

“Despite this, the sector faces an increasing number of obstacles that could hinder its development, most notably, government domestic borrowing continues to crowd out the private sector. Government says it will address this by dismantling arrears, although it has yet to give details as to how it will fund this. The private sector also faces increased costs in light of the new 30 per cent restriction on interest reduction on loans, as discussed earlier, plus the recent increase in minimum wages,” explained Mistry.

“Furthermore, continued kwacha weakness in light of Zambia’s fiscal position and higher fuel prices could also weigh heavily on an already overburdened private sector if these trends continue.”

Earlier, Ministry of Finance permanent secretary Emmanuel Pamu attributed the depreciation of the kwacha to more importation than exportation of goods.

Dr Pamu encourages exportation of goods by Zambians so that the local currency could gain its value against US dollar.

He said government in the 2019 budget allocated 28 per cent for debt repayment because it was committed to repay the loans acquired.

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