With MAIMBOLWA MULIKELELA, –
Washington DC
THE International Monetary Fund (IMF) has commended Zambia for the bold decision to revise the 2015 mining tax regime.
Recently, the Zambian Cabinet approved changes to the mineral royalty tax regime aimed at eliminating the market anxieties in the mining sector to forestall any potential instability.
IMF resident representative Tobias Rasmussen said here that the decision by the Zambian Government to go back to Parliament with the proposed revised budget makes a lot of sense.
Dr Rasmussen said it was positive that the new mining tax regime was being revised because the mining tax system that was introduced this year essentially does away with the corporate income tax for copper producers and instead raises the royalty rate.
Under the new regime, royalty rates are eight for underground mines and 20 per cent for open-cast mines.
The change was meant to make the system simpler to administer and improve tax collection.
Dr Rasmussen said this here during the IMF/World Bank Spring Meetings.
He said that the challenge with a royalty -only tax regime was that it applies regardless of whether the mine is operating at a profit or at a loss.
This discourages investment and production.
Dr Rasmussen said international best practice suggests that a sound mining tax regime ought to be stable over time while also flexible to economic and financial conditions.
“This is best achieved with a regime that combines royalty and corporate income tax,” Dr Rasmussen said.
IMF division chief for the African Department Tsidi Tsikata said given significant change in assumptions it was prudent for the Government to want take another look at the budget.
The government had said assumptions in the budget regarding the price of copper and production had changed downwards.
The budget approved by Parliament had the assumption that the price of copper was going to be US$ 6,780 per tonne but this has reduced to US$5,665 representing a reduction of US$1,115.
Production which was also assumed to likely stay at a peak of 959,696 tonnes has since dropped to 839,000 tonnes representing a drop by 130,696 tonnes.
