In 2015, the then Minister of Finance Alexander Chikwanda told parliament 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, 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 were not directly linked to the core business.
What has changed since that time?
Realising the penchant by mining companies for evading paying tax, Zambia Revenue Authority (ZRA) early this year announced coming up with forensic audits of large mining companies to establish whether or not they have been complying with the various tax legislations administered by the authority.
Financial Intelligence Centre (FIC) assistant director Clement Kapalu had earlier disclosed that Zambia was losing US$3 billion annually due to illicit financial flows mainly perpetrated in the minerals sub-sector, where tax evasion malpractices such as transfer pricing, over and under-invoicing and trade mispricing were rampant.
In trying to correct these flaws, ZRA was seeking the services of an auditing or investigation firm to undertake a forensic audit on a number of large mining companies.
According to a request for expression of interest, ZRA intends to engage a company to perform audits of identified mining companies to establish their tax compliance status.
Despite this, mining companies have continued devising ways to avoid paying tax making plans for Zambia to immediately ensure that all mining companies published their production volumes online so that the Zambia Revenue Authority (ZRA) collected the proper taxes welcome.
We totally hail the measure which has been taken as part of the recommendations under the validation report done under the Extractive Industries Transparency Initiative (EITI).
Like Mines Minister Chris Yaluma has noted, Zambia should ensure that all production activities of mining companies were disclosed to the public and made readily available.
Last year, Zambia published its EITI data for 2015 including details about the country’s legal and fiscal regimes, license allocation and registration, mineral sales and more.
According to the report, revenues from the mining sector in Zambia fell back by 9 per cent in 2015 from 2014 due to lower commodity prices and less production.
A total of ZMK 9 billion (USD 1.05 billion) was collected in tax, royalties and rent in 2015. The revenues were particularly hit by the lower demand for copper from China.
Despite all this, the mining sector remained the country’s largest economic sector accounting for almost half of total exports and 18 per cent of government revenues.
We hail Zambia’s effort in taxation which has undergone various changes over the past years. In 2014, the government hiked mining royalty rates and temporarily removed the 30% corporate income tax for mining companies).
The 2015 Zambia EITI Report explained how this “royalty only” regime led to increased production costs for companies and made revenue collection more complex for revenue authorities.
The government made new changes to the tax regime in 2015, which meant lowering the royalty rate to be more in line with neighbouring countries and reintroducing the corporate income tax.
According to the report, this system will allow for flexibility for companies investing in the mining sector and can help raise government revenues in times of declining copper prices.
As long as Zambia remains dependant on copper, there is need for government to continue devising more loop-hole free systems of taxation to ensure we get what is owed to us.