Maravi

Govt in talks with mines over tax – Musokotwane

COMMENT - For the letter of intent written by dr. Musokotwane to Dominique Strauss-Khan of the IMF, see here.

Govt in talks with mines over tax – Musokotwane
By Joan Chirwa
Tue 13 July 2010, 14:00 CAT

MINING sector contributions to Zambia’s Gross Domestic Product (GDP) over the last decade have not been matched by commensurate contributions to domestic revenues, finance minister Situmbeko Musokotwane has disclosed.

And Dr Musokotwane has stated that the Zambian government has commenced discussions with the mining sector aimed at resolving legacy issues related to the development agreements as well as the mines’ adherence to the current tax regime.

In a Letter of Intent to International Monetary Fund (IMF) managing director Dominique Strauss-Kahn, Dr Musokotwane stated that although GDP contributions by sectors such as mining had increased dramatically over the last decade, this had not equaled contributions to domestic revenues.

Dr Musokotwane stated that improving the performance of revenues would be a key area of focus in the medium-term.

“…The government remains on track to undertake a comprehensive review of tax policy and administration this year (structural benchmark for end-September 2010), and will draw on past technical assistance and the ongoing technical assistance on VAT,” he stated.

Dr Musokotwane further admitted that the country’s revenue burden continued to be borne by personal income taxpayers while corporate and import taxes and value added tax (VAT) continue to underperform.

He told the IMF that government was in negotiations with mining companies over the current tax regime and the abolished development agreements.

The government, during late president Levy Mwanawasa rule in 2007, abolished development agreements entered into with the mines at the time of privatisation that mainly gave the latter massive tax holidays, contributing little or nothing at all to the national Treasury.

To maximise earnings from the mining sector, the government, through then finance minister Ng’andu Magande, introduced windfall taxes which have however been scrapped off by the current regime.

The mining companies resisted paying windfall taxes, claiming that they had not yet started making profits owing to the huge investments made in reviving the mines.

“ In the mining area, the government has commenced discussions with the mining sector aimed at resolving legacy issues related to the development agreements as well as the adherence to the current tax regime.

In this context, the government intends to draw on lessons stemming from the ongoing audit of selected mining companies. The government will continue to draw on the expertise of the IMF and other relevant development partners on the ramifications stemming from these discussions for the fiscal regime of the mining sector,” Dr Musokotwane stated.

And Dr Musokotwane stated that Zambia was on track to attaining the Millennium Development Goals on reducing hunger, maternal and child mortality, preventing the spread of HIV and AIDS and malaria, and providing universal primary education by 2015.

However, the water, sanitation, and environmental sustainability goals were unlikely to be met without substantial effort, he indicated.

“With strong annual average real GDP growth over the FNDP period, per capita income grew to US $980 in 2009, placing Zambia in lower middle-income status. While there has been significant progress in urban poverty reduction, the challenge for the government remains to tackle rural poverty and service delivery. Consultations with stakeholders on the draft of the Sixth National Development Plan (2011–15) are underway,” he stated.

“…Economic growth is expected to remain strong over the medium term, in line with previous projections. As agricultural output reverts to trend levels, real GDP growth is expected to fall marginally to 5.8 per cent in 2010 before rising to six per cent thereafter.

Growth in 2010 will be driven by a recovery in the tertiary sector and by continued investment in the mining and construction sectors. Mines that had been closed down as a result of the crisis have reopened, and a rebound in tourism activity is expected in connection with the 2010 Football World Cup in South Africa.

“Downside risks, however, still remain amidst uncertainties about a full-fledged global recovery in 2010 and rising oil prices. Growth over the medium term is premised on the realization of policy initiatives and structural reforms aimed at economic diversification and enhanced competitiveness. Additionally, growth will be boosted by anticipated new investments in mining and electricity generation.”

Dr Musokotwane also assured that the government would continue to maintain a flexible exchange rate regime.

“Interventions in the foreign exchange market by the Bank of Zambia will be limited to the smoothing of excessive fluctuations, while allowing for a gradual buildup of international reserves,” stated Dr Musokotwane.

Labels: IMF, POVERTY, SITUMBEKO MUSOKOTWANE, WINDFALL TAX

posted by MrK @ 2:20 PM