THE Zambia Chamber of Mines (ZCM) has expressed concerns that failure by Government to reverse the ‘double taxation situation’ in the current mining regime could also unease Zambia’s Eurobond holders regarding the country economic recovery prospects.
The Chamber cautioned that Government protecting relatively small amounts of revenue today, knowingly at the expense of far larger investment sums tomorrow, would not reassure international partners that there was a sustainable plan to rebalance the nation’s finances.
In statement released today, the Chamber disclosed that it had focused its pre-Budget engagements with Government on one single provision within the current mining regime that if it were reversed, could unlock a series of investment approvals, and kick start an economic recovery.
“The provision is this: since 2019, mineral royalty payments are no longer treated as a deductible expense for the purposes of calculating corporate income tax.
“The effect of this is that mining companies end up being taxed on income that has already been paid over as a royalty – a situation referred to as double taxation. This one provision substantially increases the effective tax rate, handing over almost all the proceeds of mining to the State,” the statement reads.
ZCM noted that the failure by Government to remove this provision to protect revenue far smaller than the investment sums in the offing will not be lost on the Eurobond holders, a good proportion of whom also hold shares in the listed companies that are mining and prospecting in the country.
“But protecting relatively small amounts of revenue today, knowingly at the expense of far larger investment sums tomorrow, would not reassure our international partners that there was a sustainable plan to rebalance the nation’s finances, said the Chamber.
“These bondholders will have been looking to the renewed growth that should have followed to mitigate their income loss during the proposed moratorium on coupon payments,” it added.
Zambia, the world’s second largest copper exporter, has asked for a delay in paying its Eurobond interest as the country faces serious financial difficulties due to falling copper prices and the COVID-19 pandemic.
On 22 September, Government asked its private creditors to defer payment of interest until April. This deferral, which represents a sum of US$120 million, concerns three bond issues totalling US$3bn issued in 2012, 2014 and 2015.
And the Chamber has welcomed the permanent withdrawal of duty on ore imports that was suspended in March as part of the COVID-19 reliefs and acknowledged the extreme delicacy of the task that the Minister of Finance had to perform, given the recently announced initiation of negotiations to suspend bond repayments