THERE is need to comprehensively evaluate mining policy in Zambia and curtail the reactive approach of redesigning the fiscal regime to respond only in the short term, says Centre for Trade Policy and Development senior researcher (extractives) Webby Banda.
Banda said mining remains the backbone of Zambia’s economy accounting for 14 per cent of gross domestic product (GDP), and over 70 per cent of foreign exchange earnings.
He said the sector also contributes substantially to employment levels.
Banda said those benefits were proliferated or subdued depending on the status of mineral commodity prices.
“For instance, in high copper prices, the country tends to economically benefit more through increased foreign exchange earnings and high domestic revenue generation through fiscal instruments such as the sliding scale copper mineral royalty. However, we must appreciate that the opposite is also true,” he said.
Banda said the price of copper had increased substantially, from $5,730.97 per tonne in February, 2020 to $9,286.00 per tonne in February, 2021, the highest since 2013.
“The immediate question that needs to be answered is how the country will benefit from this state of affairs both in the short and long term. In addressing short term effects only, although not the best approach of managing affairs, the government can undertake the following: Increase the production base of mining companies by giving them at least 25 per cent capital allowances;
Reintroduce the deductibility of mineral royalty for the purpose of computing Corporate Income Tax (CIT) payable. However, this must be limited to 50 per cent of the mineral royalty payable,” he said. “This will provide a win-win situation between the government and mining companies. This will have the duo effect of mining companies having cash flow relief to continue in business and the government will have a considerable amount of mining revenue to service the country’s debt and provide social services to the citizenry.”
Banda said focusing on the long-term measures, CTPD urges the government to incentivise exploration activities.
He said such activities were paramount to the discovery of new deposits and the opening up of new mines.
“Failure to do so will result in the stifling of investments in exploration. This means new deposits will never be discovered and new mines will never be open. This will have a primary ripple effect of reduced tax revenue generation and employment levels,” Banda said. “Secondly, the government needs to design policy that enhances value addition in the copper mining sector by incentivising activities that attain forward vertical integration e.g. a lower mineral royalty rate can be given to mining companies up the mineral value chain. In going forward, there is a need to comprehensively evaluate mining policy in Zambia and curtail the reactive approach of redesigning the fiscal regime to respond only in the short term.”
He said additionally, there was a need to extend robust fiscal measures to other sub-mineral sectors other than the copper mining sector.
Banda said doing so would ensure the country garners the maximum economic benefit from mining.