Minister of Finance Alexander Chikwanda has told parliament that that only two mining companies were paying Company Income Tax under the previous tax regime as most of them claimed that they were not in tax-paying positions.
In a Ministerial Statement on the 2015 Mining Taxation Regime Presented to the National Assembly today, Mr Chikwanda said that before the introduction of the 2015 tax regime, the tax system was vulnerable to all forms of tax planning schemes such as transfer pricing, hedging and trading through “shell” companies which are not directly linked to the core business, adding that this had been a challenge for the revenue administration to detect and abate such practices.
Below is the full statement
Ministerial Statement on the 2015 Mining Taxation Regime Presented to the National Assembly by Hon. Alexander B. Chikwanda, MP – Minister of Finance
Mr Speaker, I wish to thank you for according me this opportunity to brief the House and the Nation at large on the 2015 Mining Taxation Regime which is a topical issue in our country.
Sir, despite Zambia being endowed with vast mineral resources, the country has not realised maximum benefits from the sector’s potential to support growth and enhanced socio economic development. This is against the backdrop that the sector has been experiencing high copper prices in the recent past. It is worth noting that the various changes in tax policies in the last 10 years with a view to optimise benefits from the mines have not yielded the desired results. The House may wish to note further that the contribution of the mining sector revenue as a percentage of GDP remains low at 4 percent. Similarly, the contribution of the mining sector to the national budget has remained minimal even after the Government doubled the mineral royalty rate from 3 to 6 percent.
Sir, the PF Government is cognisant that our mineral wealth is non-replenishable. It is therefore our responsibility as leaders of today to ensure that the exploited copper and other mineral resources contribute to development so as to ensure prosperity for future generations. Government is fully aware and does appreciate that the gestation period for mining companies to reap gains from investment is long. This notwithstanding, there is need to have tax policies that guarantee a win-win situation by tackling the inherent weakness that existed in the mining tax regime prior to 2015.
Mr. Speaker, before the introduction of the 2015 tax regime, the tax system was vulnerable to all forms of tax planning schemes such as transfer pricing, hedging and trading through “shell” companies which are not directly linked to the core business. Sir, it has been a challenge for the revenue administration to detect and abate such practices.
Further, provisions on capital allowances and carry forward of losses eliminated potential taxable profits. Mr Speaker, the tax structure was simply illusory as only two mining companies were paying Company Income Tax under the previous tax regime as most of them claimed that they were not in tax-paying positions.
Mr Speaker, it has therefore became imperative for the Government to restructure the mining tax regime by replacing the profit based tax system with a simple mineral royalty based regime that is final so that we insulate ourselves against tax planning schemes which are structured to wipe out taxable profits. In coming up with the 8 percent and 20 percent mineral royalty rates for underground and open cast operations respectively, the Government took into account the different cost structures for underground mining and open cast mining. Sir, I am eternally obliged to members of this august House for having overwhelmingly supported the Bill for us to proceed with the tax changes.
Mr. Speaker, we have however, received submissions from the Chamber of Mines and some of the mining companies that the new tax regime for the mining sector may pose sustainability challenges to the sector given the high cost of production for some of the mines. Sir, it is clear that the unfavourable course of events in the global economy, particularly the weak demand for copper from China coupled with the Eurozone debt crisis, have occasioned a slump in copper prices to their lowest in five years. In the event that this outlook persists our growth prospects will be dampened.
Mr Speaker, Government will pursue sector specific tax policies, and will not be persuaded to put in place tax laws to favour individual companies in order to avoid distortions. Sir, I wish to inform the nation that the Mines and Minerals Development Act contains mitigation measures which holders of the mining rights may wish to pursue on the perceived challenges the 2015 mining tax regime may present.
Sir, Government is committed to promoting investment and efficiency in the mining sector. The Government has planned to address policy matters while all operation matters will be dealt with by the specialised agency Zambia Revenue Authority which is responsible for tax administration.
Mr Speaker, regarding concerns over the application of the Value Added Tax (General) Administrative Rule Number 18 on proof of export requirements, I assured this House that it was Government’s desire to expeditiously and amicably resolve the concerns surrounding non-compliance with the requirements of Rule 18.
Sir, I am pleased to inform this august House that as a listening Government we have considered the submissions from the Chamber of Mines and we have proceeded to realign the provisions of Rule 18. This will ensure that mining companies and all exporters are not unduly encumbered by administrative rules and in the process affecting their cash flows and operations.
Mr Speaker, this is a clear demonstration of our unfettered commitment to ensuring that regulations are not onerous but supportive to investment and business development. In the same breath, we are confident that mining companies will remain resolute in complying with tax rules.
Mr Speaker, rationality and efficacy demand that our solutions are duly balanced. I therefore, would like to assure the nation through this august House that the Government is committed to ensuring that the tax system is not burdensome but conducive to tax compliance and beneficial to the country.
Mr Speaker, the Government remains open to dialogue and will welcome progressive ideas on matters relating to development of the country inclusive of those pertaining to taxation. This will be within the spirit of partnership between investors and the Government.
Mr Speaker, I thank you.
The last time I checked you were minister of finance in that very past regime, so does it mean that under your watchful eye you allowed corruption to skid beneath your nose?
“a friend is someone you drink with“ says the president Lungu,,, so all of you who dont drink have no friends.
and yes!,,, i saw this reports ba chikwanda is talking about before it reach him,,, i saw it ku bar with my friends
That’s partly what he is saying. They had hoped that the mines would act honourably and do the right thing by declaring true profits. They forgot that business and capitalism is belt on selfishness or the law of the Jungle : Survival of the fittest, in economic terms Maximising Profits.
But as a good administration which is not shy to admit that they got it wrong, they have now realised their folly and have decided to take measures to correct the auction ion.
They must on one hand be commended, while on the other castigated thus: What took you so Long, and : Is this the best you can do?
I think am the only one who pays tax,
Only two were paying tax? out of more than 10 minning Companies. And out of 800,000 people whoare in formal employment about 500,000 are paid K3000 or less, so they don’t pay tax. The remaining 300,000 are the ones paying or footing the bill for all the 15,000,000 Zambians. Or the 300,000 will have to pay for all those loans and now even on behalf of Zimbabwe too.
Wina azachiona china lenga Nkuuku kuti isazi tunda.
Which regime bwana?
And these are the practices by mining multinationals the likes of Nawakwi and HH want to protect. Sometimes you wonder whose interests these “Zambians” really want to fight for.
Nawakwi, we understand you are part and parcel of the people who are the architects of the tax regime mining houses have used to profit beyond measure. I am sure it is very difficult for you to admit that you blundered big time on this. But please allow PF to correct your mistakes.
As for HH, no one really knows exactly where this guy stands or what his real beliefs are on this issues. He has been all over the map articulating his position on this. One season he favors exactly the same tax policy PF has adopted and the next he is opposing it. His stance sounds hypocritical and self-serving really!
The problem is not the policy ,everyone can copy a policy from any cheap book on fiscal policy. The questions to ask is why 20% instead of 40% or 15%. What are the calculations and thought process that went into that determination. Do we have industry data , average costs of mining from other countries.
Secondly what are the investors options. They have many mining companies world over we only have one country. They can hold out for one year
Thirdly we were forced to give mining rights at give away prices ostensibly to create jobs and save some copperbelt towns which were becoming ghost towns. What is our strategy to avoid that.
These are the questions that need to be answered by anyone who will have the authority as Government whether it’s Nawakwi, HH, Muliokela or the PF…
I support UPND but if HH doesnt change his stance on mining tax he wont get my vote again.
Prices of copper go up and down, thats the nature of business, however Tax ni mwambo.
The fact that I pay tax and pay my electricity bills (another thing the mines have been shirking) means that me the ordinary citizen is subsidizing the mines. Its not fair and its not right.
Govt better stick to their guns on this one.
The price of metals has recovered this include copper as from yesterday it was $6000 per tonne.
This man is a trickster and must be relieved of his duties because he will destroy the enemy. How can he say such things when he has always been Finance Minister in the two PF Governments?
Mr. Chikwanda, just accept that you are in that office for selfish interests bwana. You have been cheating Mr. Sata dand now you want to extend the same to our loved President Mr. Lungu, we will NOT allow that unfortunately because we all know you and your tricks.
You deep your hands in so many Government institutions and agencies where you have planted your people. Mr. President Lungu, please don’t be cheated by this man….. Zambia is bigger than him and people have so much trust and confidence in your leadership and NOT Chikwanda’s arm twisting games.
Only two. HH why are you not with the Zambian people when it comes to taxing the mines.
You voted for lungu so go to him. HH pays his own taxes. Leave him alone.
@chilubaFT
What do you want HH to say when PF is doing a brilliant job according to you PF minions.
HH will be vindicated by the end of this year when PF and Lungu ‘s failures become extremely visible.
Please do not involve HH in matters he has not chosen to comment on.
Have you also noticed how he avoids this issue like the plaque ?
Only good at taking Selfies with OP reports in order to feel near to the presidency . smh
jamakudi
HH does not pay his taxes , ask people at ZRA ,he owes a lot in PAYE. He is a criminal .
@ Jamakudi why have you failed to get him arrested? Then ZRA are incompetent for allowing the situation to go uncorrected.
I bet only Kansanshi and lumwana, are paying tax. However, copper content must be considered when determining the royalty rate. The copper content in kansanshi, lumwana and kalumbila ore is low compared to Congo. The royalty rates are too high and don’t forget that they need to make profit also. They did nt come here to play games and do father Christmas. Consult and discuss with the chamber of mines and listening to pipo like chief mphande who know nothing.
Your reasoning is very strange and in contempt to national interest. The problem here is not the abundance of copper in our mines but the flawed royalty system.
The thing is that these companies have grown used to getting our copper too cheap. This is why minister Chikwanda must not expect it to be easy to negotiate for a better and more profitable tax regime. Basically, even the 8 – 20% in talk leaves us with nothing and we still remain poor!
We have a common responsibility as Zambians to make sure that we get a fair share of our resources and stand up against anyone who thinks otherwise! If we fail to do so, we will never be the true owners of Zambia and our resources!
@ Robin…do not just yap yap on things you do not understand. if you do not know something you better keep quite. Produce evidence that HH owes or does not pay tax or you are inviting a law suit. You ***** stupid
Mapatzya
Why would i mention PAYE of all taxes ? you are the dull one ,wake up and smell the coffee.
Well spoken Alex otherwise posterity will judge you harshly for giving in to these capitalist whose interest is profit maximization.
So when the mining companies fail to pay taxes we change the laws to suit them?
This is what happens when govts continue to employ unqualified people. Zambian govt has no intellect to investigate mining companies and come up with winning laws. This cycle will continue as long as you continue to elect people like RB, Sata and Lungu. You cannot plant plant bondwe and expect to harvest maize.
Yes you cannot plant bondwe and expect to get rape! Floating the same loser four times and expecting different results. Besides who would side and vote for someone on the side of these capitalists? Bravo ABC don’t bend to please these caiptalists!
Government should not back off its policies. If mines are playing ‘chicken’, let’s meet ‘head on’! Our resources are finite and we ought to get value for them. The above stats on copper contribution to our economy are appalling. Let’s not be cheated by low paying jobs, low quality housing structures and paying a blind eye to the by products of copper exiting our borders
@Choma, we do not change the laws to suit them, but to catch them hence their whining!
When we used profits to tax them none of them (except those cited to have been complying) were making profits but since the tax is now to be based on production or sales, they feel cornered and can now only complain and make all sorts of threats. listening to Minister Chikwanda’s arguments it is very clear that he has the interest of this country at heart and therefore deserves our support and encouragment
@Nine Chale, @jasmine, and @The Zambian, I find your comments reasonable and level-headed. Unlike others who simply want to oppose everything this Govt does—even when they mean well. For as long as the initiative/policy is NOT SUPPORTED or SUGGESTED by their “cult leader,” they will not see any sense or value in it. It is like nothing Hon. Chikwanda has stated makes sense to these people. That’s how dedicated to the “NON-SENSE” these folks are. Go figure!
The policies of the current government are failing, reason why they choose to blame the mining companies. Yes the mining companies have to pay the necessary legal taxes, but isn’t Chikwanda trying to squeeze more eggs out of the golden egg laying chicken? I feel being as old as he is, Chikwanda has failed to grasp the concept of globalisation, foreign companies will have to be allowed to invest & reap where they sow. You can’t keep on borrowing & expect the mines to pay for it. Maybe he can also enlighten us on the story the Watchdog is carrying where it is reported that one Indian businessman claims he is untouchable as he is close to Mr Chikwanda? Is the businessman tax compliant in full?
The only time Zambia ever really benefitted from mineral proceeds was when government was part-timer of the mines, under KK. It will remain a game of cat and mouse to really get a good deal from these multinationals whose main pursuit is profit-maximisation, with no regard to social responsibility. I was born at a mine hospital in Chingola and received free education from preschool to college – because ZCCM was jointly owned with government. While I applaud this government’s efforts at tax collection, it is simply not full-proof! We need to go back to joint state-private ownership of the mines- just like the Botswana government owns 50% of DeBtswana (De Beers Botswana) and 15% of De Beers International Ltd. Zimbabwe recently acquired half of Zimplants, amid a lot of protestations. Wake…
We can vilify colonizers all we like on the manner of harvesting our resources but they deserve praise in that they have vision and understanding on taxation and usage of gains from taxes. African leaders are messing up big time on tax matters and economy management as a whole, they are busy experimenting on trial and error approaches.
How can you praise someone who resists every attempt for you to develop and reach his level? The colonizers you’re talking about are the real forces behind these multinational companies.
They will do anything in their power to prevent African countries from freeing themselves from the status quo of economic dependency.
On the other hand when African leaders like Robert Mugabe rise up to loosen the colonial grip for the best interest of his people, they get stabbed by their own so what do you expect?
Nine Chale
You are a true patriot of the land.
Here we go again!
Why can’t the gov’t just stop this Mines lark. It’s not profitable in this economic climate, reduce production and redeploy people or reduce production to a level that only helps Mines provide employment in the short term to valuable staff.
Clearly have never and will not in this climate have enough GDP contribution from the Mines sector.
We are losing our resources for nothing.
If mining was not profitable, the multinationals would have left by now! Don’t be gullible. We just have to hassle these multinationals to get a fair deal for our minerals, otherwise Europe will continue to develop using profits from our minerals. The London metal exchange trades in almost all known minerals and precious stones and yet the UK does not have any minerals. Margaret Thatcher closed the coal mines in Wales and the off shore oil from Scotland mostly benefits London- the motive behind the recent attempt by Scotland to break away from the UK. The guys are investors ,period! If you allowed them, they would love you to work for them for free! Pakwana ubunga tapabansoni, bane! Wake up, bane!
We need to reduce our production. We are wasting our resources over-mining them at a time market prices are down.
When the prices go up we can increase production and then…….hassle them!
Right now we need to keep Miners in work, so we reduce to a level to cover salaries and running costs. We get rid of ‘investors.’
You ‘create’ fake jobs in Mines that are like digging holes and filling them again, people get paid, pay tax to gov’t.
We are to getting enough towards GDP. No need to use the copper. Conserve until we have the technology and know how.
I meant government was part-owner of the mines, not part-timer. Please forgive the predictive text error of my smartphone.
@ kachokwe, I like the part… ” Forgive the predictive text error of my smartphone.” It’s just you who made such an error otherwise you are using a dullphone !
um surely if you are building up a company you do not realise profits immediately nut only after a couple of years once you have finished investing all your money back into building up the company ?
@mama Africa
Currently most big businesses have downsized because of the economic climate.
It makes no sense to increase production at current market price; it’s like selling 2 for the price of 1. That’s really why these Mines are trying to cut down on employees, it’s not tax per se.
We need a 60% share (nationalisation), in the mines so we can get more towards GDP and a greater share for citizens.
Investor Mining is not working for us.
“…as only two mining companies were paying Company Income Tax under the previous tax regime…”
Which companies kansi?
It is a well known fact that the 2 companies who complied with the tax regime in Zambia are:
First Quantum of Kansanshi/Kalumbila, and
CNMC of Luanshya/Chambishi
Have you people wondered why Emmanuel Mutati and Jackson Sikamo of the Chamber of Mines were so vocal?
Their companies Glencore and Metorex, respectively, were the biggest culprits!
GRZ please wake up.
we still have 20% stake in all the mines in zambia. we had chance to hike the royalty tax way back when mines were not feeling the pinch and copper was selling at 8-9000 $/ton. the grades were still high by then. this move has come at the wrong time because the average head grades have dropped to 0.45-0.65 %TCu. if it were on the copperbelt, most concentrators would have shut down by now. we hang by the thread and thats why we are appealing to the govt to consider revising their tax regime. i feel for the poor miners who are likely to lose employment in the name of cost saving coz no one will stand for them.
It is never too late to correct a wrong. Chikwanda must be supported in taking the mines to task but he indeed has outlived his relevance.
FINE. HERE SI SOME DATA.
THE CHEAPEST COPPER PRODUCING PLANT IN ZAMBIA HAS A FIGURE OF US$2282 PER TONNE OF FINISHED COPPER METAL
IF THE MOST EXPENSIVE COPPER PRODUCER IS AT US$3500 PER
TONNE, WHICH I DOUBT VERY MUCH, WHAT ARE TALKING ABOUT
IN MINE OPERATIONS?
NEXT I WILL WANT TO GIVE YOU INDUSTRY COST DATA AS
FOLLOWS
MINING, CONCENTRATING, SMELTING AND REFINING.
IF I DO THIEVES WILL BE EXPOSED!
Don’t forget our “Indian Godbrothers” KCM. They are known for keeping 2 sets of accounts. A true record for the owners in London, and a flase set, for GRZ, to exploit the tax loophole. How unethical. A company which got Zambia’s assets for a song…..STILL NOT PAYING TAX???
What about the Indian man ARGAWAL who boasted of getting the mining rights for a pea-nut? Does he pay the taxes?
This is the same man who asked government to refund mining 😮