Compromise Urged Over Zambian Mining Taxation
12 November 2012
Posted by: SAIT Technical
By Robert Lee (Tax Talk) http://www.tax-news.com/
Executive summary (SAIT Technical)
Dr Mwila Imakando, former head of the EAZ, has urged stakeholders to reach a compromise over mineral taxation in Zambia. The government recently announced that companies would be obliged to make production figures available for tax purposes. The costs of exploration, development and reclamation should be taken into consideration when assessing the level of taxation the government could levy on mining corporations. Mining is a vital, long-term component of Zambia's economy, providing 70% of foreign exchange earnings.
The former head of the Economic Association of Zambia (EAZ), Dr Mwila Imakando, has urged all stakeholders to reach a compromise solution over mineral taxation following a recent announcement by the Zambian government that mineral companies will be compelled to make production figures available for taxation purposes.
As part of an ongoing debate in the region, Dr Imakando stressed that the costs of exploration, development and reclamation should be taken into consideration when assessing the level of taxation the government could levy on mining corporations. He also emphasized that the first step to achieving the necessary balance was to gain accurate information.
"Debate on mineral taxation is healthy and necessary. Debate must, however, be informed by facts and figures,” he told a mining industry tax conference in Lusaka recently. "Transparency in mineral production figures is critical. Likewise costs of production and declared profits must be supported by accurate information.”
"Compromise is essential in agreeing as to what mineral taxation rates should be levied to ensure a win- win situation for mining companies and the Zambian people,” he said.
Dr Imakando added that independent audits of production, costs and revenues of mining companies by the Zambia Revenue Authority (ZRA) was essential if revenues were to be increased from the mining sector.
"ZRA's capacity to inspect and audit production must be built to allow for a smooth audit of production and revenues, this will result in increased revenue collections from the mining sector,” he observed.
Mining is a seen as a vital, long-term component of Zambia's economy, providing 70% of foreign exchange earnings.
In the 2013 budget, announced on October 12, Zambia's Finance Minister Alexander Chikwanda introduced a property transfer tax at the rate of 10% on the sale or transfer of a mining right, and reduced to 25%, from 100%, the capital expenditure deduction rate applicable in the mining sector. He also stipulated that capital expenditure can only be claimed for deduction from the year the capital asset is brought into use in the business.
Furthermore, transfer pricing rules will be applied to interest payments made by mining companies, with the minister explaining that "this is meant to ensure that interest payments are not only subject to thin capitalization rules but also transfer pricing rules, where the rate on interest between related or associated parties is not at arm's length”.