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(STICKY) IMF notes mining sector’s low contribution to national treasury

COMMENT - The mines contribute 1% of all taxes paid to the ZRA. 'But the mines are paying taxes', said minister Musokotwane in an interview.

IMF notes mining sector’s low contribution to national treasury
By Chiwoyu Sinyangwe
Fri 15 Oct. 2010, 04:00

THE contribution of the mining sector to Zambia’s Treasury is very small though it comprises a very large part of the economy, International Monetary Fund (IMF) resident representative Perry Perone said yesterday.

During the PriceWaterHouseCoopers sponsored post 2011 – budget discussion, Perone said there was need for increased tax revenue collections from the mining sector in view of the falling tax collections by Zambia Revenue Authority (ZRA). Perone said the contribution of revenue collection from the mining sector to the country’s revenue basket was problematic.

Mining sector contributes about 70 per cent of the country’s foreign exchange earnings, constituting 9.7 per cent of the total economic output, while tax contribution is about one per cent of the total collection by ZRA.

“The revenue trends are such that it is not a secret tax revenues have been trending down...Direct taxes like income tax have been relatively stable but the real problem has been in indirect taxes and of course the issue of the mining sector which contributes on a very small amount to the Treasury even though it comprises a very large part of the economy,” Perone said. “However, there is an expectation in 2010 and 2011 it will improve. There is optimism.”

Perone also said there was need to improve the government’s relation with the foreign mine owners which were strained over the 2008 mining fiscal regime which was reversed last year following the change of governors.

“There is need for the regularisation of the relations with the mining sector. In the last couple of years, it’s been a difficult relationship, there has been a change in the government imposing a tax regime going against the Development Agreements, and then there was period when the government was not discussing with the mining companies,” said Perone.

“The mining companies are picking and choosing which tax they are paying and some of them are paying in escrow accounts. But the good thing is that earlier this year, the government did reengage and from everything that we understand, there is feeling that mining companies have as much to win from having stable relation and having a clear agreement with the government as the government does. There is a lot of optimism...and hopefully, they will come to an agreement soon so that the mining sector can start contributions.”

Perone said increasing mining taxes needed to be done in a manner that did not hurt the sector, and at the same time provide capacity for ZRA to administer the tax regime on the vast sector.

He suggested upping company tax paid by mining firms as one way of augmenting tax collections from the mining sector.

“I think being flexible about the way the mining sector needs to get taxed as long as the system put in place is effective and that is pretty much the problem,” said Perone.

“You can have a lot of different debates about what kind of the windfall tax or whether it is the right way to go. Depending on the capacity of ZRA, probably corporate profit tax is the way to go. It’s supposed to be very simple to administer but the point for us, we don’t wanna even get engaged in that debate, it has to do with ZRA and ministry of finance have to find the best way to tax and it can be done in a variety of ways.”

Labels: IMF, PRIVATISATION, TAXATION, WINDFALL TAX

posted by MrK @ 6:53 AM