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Mineral tax regime to revitalise Zambian Kwacha

The Zambian Kwacha is expected to gain strength against the US dollar after the mineral royalty tax is changed. (Image source: NumismaticCoinHistory/Flickr)

The Zambian government’s approval to change the mineral royalty tax regime is expected to strengthen the local currency Kwacha against the dollar, stated Zambian banks

One Zambian Kwacha costs US$0.13.

On 20 April 2015, the nation’s Cabinet approved the revision of the mineral royalty tax rate for open-cast and underground mining operations from 20 per cent to nine per cent. According to Finance Bank, with the reversal of the mineral royalty tax, the Zambian Kwacha is expected to trade in the K7.30 and K7.50 range.

“Following the Cabinet’s approval of changes to the mineral royalty tax to be set at nine per cent effective 1 July 2015, we should continue to witness a strengthening Kwacha though gains may not be sustainable until the market has adequate inflows to meet the demand,” said the bank’s recent market update.

The Kwacha is expected to maintain its momentum on account of improved corporate flows.

Cavmont Bank, in its market report, said that the Kwacha opened trading at K7.36 and K7.38 and appreciated by K0.06 to touch the intra-day high of K7.30 and K7.32 on the inter-bank recently.

According to the bank, the Kwacha has in the recent past witnessed instability owing to a mismatch in demand and supply. The local currency has failed to sustain gains due to strong dollar demand.

It further maintains that the local unit remained largely unchanged against the dollar and activity was largely subdued as both exporters and importers stayed out of the market.

Zanaco Bank also says the Kwacha is expected to continue trading in a strong tone against the dollar on the back of strong corporate and inter-bank inflows. The local currency is expected to gain against the dollar due to inflows of the greenback on the market.

“The Kwacha is expected to continue its recent bullish run as hard currency inflows appear to outweigh consumer greenback demand, which has slackened in part due to a tight monetary environment,” the bank said.

Meanwhile, the Zambia Tax Platform (ZTP) said that the amendment of the mining tax regime will adversely affect projected revenue collection. The Cabinet has projected a yearly revenue loss of K2.3 bn as a result of the adjustment in the law following the revision of the mineral royalty tax.

Therefore, ZTP has called on the Zambian government to demonstrate how it intends to curb aggressive tax planning and avoidance facilitated through the use of a two-tier tax system, which was the main reason for resorting to a single-tier mineral royalty-based tax system.

ZTP chairperson Mutale Wakung’uma said the government has an obligation to inform the citizens on the measures that have been put in place, to ensure that the implementation of the 2015 budget is not affected. Accordingly, the government should not resort to borrowing, in an attempt to meet the budget shortfall given the current debt and high borrowing interest rates, considering that it still has a fiscal deficit that was carried forward from the previous two years.

“It is unfortunate that while other countries are waking up to the reality of the power of corporate, our own country seems to be in a perpetual state of indecision. Zambia has lost an opportunity to demonstrate leadership in the fight against illicit financial flows from our country and continent. We, therefore, call upon the government to clearly demonstrate the measures put in place to mitigate this.”

Wakung’uma added that companies should pay their fair share of taxes, which are essential for the provision of public services such as education and health, and the government must ensure that the money is spent on such services for the benefit of the people of Zambia, particularly those living in poverty.

In addition, the Zambia Chamber of Mines (ZCM) has welcomed the Cabinet’s approval of the changes to the 2015 miming tax regime. ZCM president Jackson Sikamo said, “The two-tier tax system will ensure investment in the mining sector for sustainability of the industry and security of direct, indirect and induced jobs,” he said.

There will also be predictability, consistency and transparency to enable long-term planning by mine operators and potential new entrants into the industry.

– Nawa Mutemweno

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