‘Compel mines to give locals contracts’
Written by Kabanda Chulu
Tuesday, August 11, 2009 5:51:35 PM
MINE Suppliers and Contractors Association chairperson Fanuel Banda has advised the government to create policies that will compel mining companies to deliberately offer contracts to local suppliers.
Commenting on the increasing levels of inside trading and lack of transparency in the procurement services for the mining industry, Banda said foreign suppliers would not add value to the Zambian economy.
“Our understanding is that the business of trading should be done by Zambians unless where they fail but even then partnerships should be encouraged to be established so that there is that linkage. And government must create policies to compel the mines to offer contracts to local people because they prefer those who come from their countries,” Banda said.
“Also there is no transparency and inside trading is too rampant when supplying the mines. For instance, Mopani Copper Mines (MCM) spends an average of US $ 20 million per month on procurement but these funds always get back to their respective countries, so the mines should be compelled to pass through benefits to local people supplying the mines.”
To address the issue of inside trading and lack of transparency, Mopani Copper Mines in 2007 introduced the Quadrem System, which is a kind of online procurement system, but many local suppliers misunderstood the concept and resisted it, saying it would favour foreign suppliers.
The local suppliers petitioned late president Levy Mwanawasa that the Quadrem system would disadvantage local suppliers. Consequently, it was removed hence is no longer in place.
Labels: CONTRACTORS, FANUEL BANDA, MCM, MINING, MINING CONTRACTS, MSCA, PROCUREMENT SYSTEMS, QUADREM
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Govt set to review mining contracts
Herald Reporter
GOVERNMENT is considering reviewing mining contracts as some companies are sitting on claims for speculative purposes at a time when the country is looking for serious investors, Mines and Mining Development Minister Obert Mpofu has said.
Minister Mpofu told investors at the just-ended 5th Annual Mining in Africa Conference in Johannesburg, South Africa, that Government was contemplating taking measures such as the "use-it-or-lose-it policy".
"We are contemplating introducing that kind of measure to deal with those that have been sitting on a lot of claims for a long-time," Minister Mpofu said. He said such behaviour derailed foreign direct investment.
"Investors come but are unable to invest because somebody is sitting on claims in most of the important minerals," he said.
"It is a serious issue that we are addressing. We are working on a mechanism on how best to address this." Minister Mpofu also cleared the air on Government’s indigenisation policy, saying this should not discourage investment.
"We are sensitive to regional experiences regarding indigenisation. We will be guided by what is feasible," he said.
Labels: MINING, MINING CONTRACTS, OBERT MPOFU
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Monday, April 21, 2008
Ecuador revokes 80% of mining concessions
Story link: Ecuador revokes 80% of mining concessions by Gill Montia
Ecuador has suspended mining exploration activities and revoked a large number of concessions while it prepares new mining legislation.
The country’s government, headed by President Rafael Correa, says it has taken the dramatic action to secure greater control of Ecuador’s natural resources and increase the amount of profit the mining sector contributes to the state.
The ban could last for around 180 days and is accompanied by the cancellation of 80% of the country’s 5,000 plus mining concession.
Around 40 international mining companies operate in the country, contributing millions of dollars in investment to the mining economy.
It is understood that the Ecuadorian government believes the concessions were sold too cheaply and it will therefore be renegotiating their terms.
There are also plans to create a state-owned mining company to exploit the country’s mineral reserves, which are estimated at $220 billion.
No large-scale mining activity is currently taking place in Ecuador and critics of the country’s concession system say that it has favoured speculators rather than serious investors.
Toronto-based Aurelian Resources held a concession for the Fruta del Norte gold-silver discovery, which is believed to be a world-class prospect.
The company had plans to commence an initial development of the discovery this year.
Labels: DEVELOPMENT AGREEMENTS, EQUADOR, MINING CONTRACTS, RAFAEL CORREA
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Media and the mines: mining for the truth
By Prof Fackson Banda
Wednesday February 20, 2008 [03:00]
The announcement by the Minister of Finance to revise the mining tax regime has sparked a controversy of national and nationalistic proportions. National, because it has engulfed the whole country; nationalistic, because it has rekindled feelings of national fellow-feeling among Zambians. This is an opportunity to unite the country behind a common cause, namely the utilisation of our mineral resources for the noble goal of poverty alleviation. The role of the media in this cause is definitely significant.
We know that editorial commentaries have issued forth from our media organisations, including The Post newspaper. Other citizens, including the virtual Zambia Media Forum, have come out in support of the government’s decision. Opposition political parties are also generally in support of the legislative proposal. Aside from the struggle for liberation from colonial imperialism, never has the country been so united as it is on this issue.
But this must raise fundamental questions about the role of the media in the debate. Never in our history has the media been so pervasive as it is now. We have greater numbers of media outlets – community radio stations, commercial radio stations, television stations and newspapers. This debate should resound throughout the country, engaging Zambians in the problems and prospects attending this national saga.
For me, the most important thing is to investigate the claims being made by both parties. There are serious claims on both sides of the debate. The mining owners have alleged that the tax regime is much too high to afford profitably. The implication is that the government’s tax proposal is unreasonable. Implicated in this debate are the shareholders. These are human beings with feelings for poor countries as much as they are predisposed towards profit-maximisation. Who are they?
On the other hand, the government, through a technical committee financed by donors to consider the various tax options, is convinced that the mines are making so much profit that the tax hike shouldn’t be a problem. Where does the truth lie?
The mining agreements, (in) famously called “Development Agreements”, were negotiated during the reign of former president Frederick Chiluba. Some of the protagonists in the negotiation process have come out, alleging that the mining agreements were “unconstitutional”. Were they? Under what conditions were they negotiated? Why were they not subjected to public scrutiny? These questions are worthy of investigation. We can make all sorts of uninformed allegations, implicitly supportive of either side of the debate, but we still need some good old journalistic police-work to illuminate the dark recesses of the debate.
So, where should the media be mining for the truth? Several alleyways of controversy, I believe. Firstly, there are the circumstances under which the agreements were signed. This includes the people who were involved in this process. Talking to such people should help to unearth the conditions of negotiation. Did the negotiators feel any sense of pressure to agree to the terms of the contracts? A casual reading of the Development Agreements reveals glaring instances in which the government seemed to have been pushed into a tight corner, literally strait-jacketed into policy and legislative inaction. There are several instances of this.
For example, on the question of environmental protection, the Agreement between the Chambishi Metals Plc and the government, signed on the 11th of September 1998, prohibits the government to legislate against the mining companies for a period of fifteen years. Section 12.2 of the Agreement states that “subject to compliance by the company with the Environmental Plan…GRZ hereby confirms that for a period of fifteen (15) years from the Effective Date, it will not take any action (and will procure no action is taken by any of its ministries, departments or agencies over which it has operational control on its behalf) under or enforcing, any applicable Environmental Laws with the intent of…”
Then the Agreement goes on to list those things against which the government must forbid such enforcement of legislation. Among them are: (i) no requirement for companies to clean up any pollution they found; (ii) no imposition of penalties or fines for breaching environmental laws in place; (iii) no increasing such fines beyond what was applicable at the effective date of the Development Agreements; and (iv) absorption of the company from any responsibility for harm, damage, claims or losses of any kind whatsoever suffered in the past or in the future arising out of activities undertaken by ZCCM.
The actual wording of the Agreement seems to be much tighter than I have expressed it here. Of course, the Agreement also makes mention of the company negotiating an Environmental Plan with the government. All else – pre-existing environmental policies and laws – pales into insignificance beside this Plan. Despite the Environmental Plan, there does not appear to be much that obliges the company to be environmentally robust in this Agreement. What’s more: The Environmental Council of Zambia (ECZ) becomes a non-factor in this equation. What can the technocrats do in the face of the Development Agreements?
And the experience on the ground shows how relaxed the mining companies seem to be with regard to environmental protection. This could be explained in terms of the laxity in the Agreements. Here we have a classic example of the need to enact and enforce strong environmental protection laws. There can never be a more telling example than this. Teasing out the relationship between policy-cum-legislative laxity and actual environmental practice becomes an area for active media engagement.
For so long, transnational corporations have been known to exploit poor environmental laws, especially if such laws are not even implemented by state agencies. The Development Agreements actually encourage non-compliance on the part of the companies and inaction on the part of the implementing or enforcement agencies. Is it any wonder that we have been losing lives through the mining operations? Is it any wonder that all the politicians can do is apologise and pontificate about the need for stronger safety measures? The truth is that the mining companies know that they stand on protected ground.
Second, the media can attempt to mine into the (un)-constitutionality of the Development Agreements. We need to establish what the Law of Contract says with regard to the legality of such Agreements. We need to establish precedents in which contracts can be overturned due to prevailing public interest considerations. Such an investigation can, with the help of legal minds, be facilitated by the media.
But more importantly, the Development Agreements raise questions about the (in)-compatibility between the Constitution of the Republic of Zambia and any subsidiary legislation. Which subsidiary legislation, enacted by our Parliament, do the Development Agreements draw upon? When was such legislation enacted? Are the Agreements constitutional, then? Let’s take the issue of so-called “tax stability”. The Agreement between Chambishi Metals Plc and the government clearly stipulates that the government must make no tax laws that could disadvantage the companies in any way for fifteen years. More specifically, the government is required not to raise any corporate income tax or withholding tax rates, or otherwise amend the VAT and corporate tax regime applicable to the companies from those effective on the date of agreement. The Agreement goes on to forbid the government to “impose new taxes or fiscal imposts on the conduct of Normal Operations”.
As some analysts have observed, these provisions raise fundamental questions about both the constitutionality of such provisions and the possible usurpation of Parliamentary oversight role. Parliament enacts laws and oversees the implementation of government policy. If we understand the Agreements logically, then such legislative and oversight law is suspended for a period of fifteen years.
This may well jeopardise the country’s political stability; political stability consists in the ability to enact laws to address the exigencies of the moment. In fact, it may well destabilise the constitutional order of the country. The constitution structures the affairs of government. One such affair is to impose tax. If that ability is suspended for fifteen years, what does that mean for our constitutional order and stability? This, I say, is a legitimate area for media investigation. Again, this is a question that goes beyond lawyers. It must encapsulate all sections of society. For constitutional legitimacy is derived from “the people”. And the people are more than just legal experts.
An important point for media investigation thus becomes the extent to which citizens determine public affairs. It is evident that the Development Agreements were not meant to be in the public domain. It is largely civil-society activism that has enabled the publication of such Agreements on web sites. And, as such, many of us have been able to access the documents and analyse them independently. It can be said that transnational corporations tend to exhibit undemocratic practices. In order to be bullish, corporations must hide certain information. It is evident that if the draft development agreements had been subjected to public scrutiny, they would have raised many questions. Going through them now, one’s blood boils at the extent of the betrayal of public trust.
Public debate on issues of public policy is not a luxury. It is a necessity precisely because of the situation the country finds itself in. It doesn’t matter how legally intricate the issue at hand might be. It can be framed in terms that are easily understandable to all. Insulating discussions within the realm of legalese tends to hide the deep-seated human issues at stake. The issues can be boiled down to the following: poverty alleviation; social sector investment; environmental protection; human development; etc. These are non-negotiable when it comes to such agreements.
A look at the Agreements shows the negotiating teams’ lackadaisical approach to these issues. The mining companies seem to have had a precise idea of what they wanted. They negotiated themselves into a strong position vis-à-vis a number of issues, not least environmental protection. In general, the Development Agreements weigh in favour of profitability and against people. What about the advantages enjoyed by foreign staff? They seem to outweigh those of Zambian nationals. Even the percentage of top management positions reserved for Zambian managers is minimal. As a matter of fact, access to such positions by Zambians is effectively blocked for fifteen years, even if we had the most qualified Zambians to fill those positions.
Opening up such negotiation processes to public debate and scrutiny makes governing much easier. We all understand the burden that those appointed to constitute the GRZ negotiation team must have carried; but there is no need to carry such a burden alone. There are over eleven million Zambians who can help lighten the burden. Governing needs to become much more about participation than about technocracy. And the media’s investigative nose is critical to this process.
So help us God in this our hour of need!
f.banda@ru.ac.za.
Labels: MINING CONTRACTS, WINDFALL TAX
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Zambia has lost $2bn from delayed taxation on mines, says Hichilema
By Mutale Kapekele and Maluba Jere
Monday February 18, 2008 [03:00]
ZAMBIA has lost $2 billion dollars (K8 trillion) as a result of delayed taxation on the mines, UPND president Hakainde Hichilema has said. Hichilema said the government had been too slow in increasing taxation on the mines which resulted in the country losing out.
“Effecting taxation on the mines is long overdue. The MMD was so slow in affecting a higher tax regime and because of those delays the country has lost $2 billion dollars,” Hichilema said. “If taxes were effected at the right time, we would have accrued K8 trillion ($2 billion).”
He said the right time to have introduced the new tax regime was in 2005 when the copper prices went up.
Hichilema said the “revenue loss” was a big blow to the country as the money could have been used in poverty eradication and in other developmental activities.
“It is such failures by the MMD that are perpetuating poverty,” He said. “That money could have been used to build better bridges, to buy medicines in hospitals and clinics and other areas of need.”
He said the increment of mining taxation from 31.7 per cent to 47 per cent was not sufficient.
“Taxation on the mines should be around 50 per cent if we are to generate proper revenue, the current increment is still low,” Hichilema said. “The direct and indirect tax on the mines should be able to generate $1 billion (K4 trillion) per annum if it was pegged at 50 per cent.”
Hichilema said if the government aimed at getting $1 billion per annum, the revenue would translate into 30 per cent of the annual budget.
“Imagine raising 30 per cent of the budget just from one sector. This is more than the total donor funds that we get per year,” he said. “With such kind of money, the economy will grow by 10 per cent per annum. The MMD are flat and cannot even think about that.”
He said the mines should now just discuss with the government as to how they would pay.
Hichilema said the new tax regime should be in place by the end of March and that once implemented, revenue must be applied prudently.
Labels: DEVELOPMENT AGREEMENTS, HAKAINDE HICHILEMA, MINING CONTRACTS, UPND, WINDFALL TAX
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Mine owners threatens to sue Government
By REBECCA CHILESHE
MINING companies have resisted the proposed new mining tax regime and threatened legal action against Government if it implements the new law that will introduce higher taxes in the sector. Making a presentation before a parliamentary watchdog committee, the
Chamber of Mines, a cartel of mining firms operating in Zambia, painted a picture of doom and gloom, warning of an economic recession with obvious consequences of rising unemployment, poverty and a serious damage to Zambia’s reputation as a favoured destination for foreign direct investments (FDIs).
The mining firms are ready to re-negotiate the development agreements they signed with Government but will drag the State to court over the proposed new law.
Chamber of Mines of Zambia general manager, Fred Bantubonse, told the expanded parliamentary committee on estimates yesterday that mining firms were saddened that Government had decided to change mining taxation “without consultation with investors or consideration of the existing development agreements.”
The parliamentary committee, chaired by Itezhi Tezhi UPND member of Parliament, Godfrey Beene was told that the mining firms were totally opposed to the proposed new taxation in the sector and will definitely litigate against the Government.
“It must be recognised that Zambia still needs private investment from both local and foreign sources to drive the economy forward. The way in which Government deals with existing investors is the best indicator of how future investors, whether in mining or other sectors, will perceive the country,” Mr Bantubonse said.
He alleged that the new tax regime would weaken international confidence in the Zambian economy and disrupt future FDIs.
“The number of new projects will drop significantly, if not to zero,” he said.
He said following the budget address by the Minister of Finance and National Planning, mining firms engaged tax consultants who found that the effective tax rate could aggregate to as much as 79 per cent.
He warned that economic recession would set in with obvious consequences of rising unemployment and poverty and ruin Zambia’s reputation as a destination for FDIs.
He said a unilateral change in the tax regime and the associated impact on the country’s ability to respect agreements has come at a time when Government was seeking to secure a sovereign risk rating to make credit much cheaper.
Chibuluma Mines Plc chief financial officer, Ed Mounsey, said the mine had poor profits for eight years and that new money only started coming in the last two years.
He said if the new tax regime was effected, the mine would have a zero net return and would have to generate additional profits from elsewhere.
First Quantum Minerals (FQM) country manager, Chisanga Puta-Chekwe, said the mine had invested US$493 million in Kansanshi Mines Plc and “transformed the face of Solwezi.”
Mr Chekwe-Puta said development agreements were legally binding documents and that if the new tax regime was effected, FQM would have no choice but to seek legal redress.
He said Government must note that they would be liable for settling the cost of litigation.
Equinox Minerals Limited president and chief executive officer, Craig Williams, said Lumwana Mine had not enjoyed any windfall profits and that it was months away from producing its first pound of copper.
He said once profits started coming in, they would be directed to paying the huge debt in millions of dollars it owes financiers of the US$800 million Greenfield investment.
He warned that the new tax regime was not good for new investments and so Government should just renegotiate the development agreements.
Konkola Copper Mines (KCM) Plc director of operations, CP Baid, said the proposed fiscal regime would jeopardise mines’ operations.
“The new tax would make Zambia uncompetitive, unattractive and would lead to investment destruction.
There is need for meaningful dialogue before the new tax regime is implemented,” he said.
Mopani Copper Mines (MCM) chief financial officer, Gavin Heale, said the mining companies were interested to know the formula used to arrive at the proposed 47 per cent tax.
Luena MP, Charles Milupi (Independent), said some of the figures being presented were of concern because they did not seem correct. He wondered whether this was an attempt by the mining companies to understate profits.
Monze MP, Jack Mwiimbu (UPND) said he had only threats from mining firms yet the reason the committee invited them was to get their views on the proposed tax regime.
But Chamber of Mines of Zambia chairperson, Passmore Hamukoma, said the mining companies were not issuing threats, but were merely sharing their views so as to arrive at some form of understanding.
But in an interview later, Minister of Finance and National Planning, Ng’andu Magande, said Government was not obliged to consult anyone over tax changes.
He said the new mine tax will be implemented and Government was ready to meet opponents in court.
Labels: DEVELOPMENT AGREEMENTS, MINING CONTRACTS, WINDFALL TAX
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Development agreements
By Trevor Simumba
Thursday February 07, 2008 [03:00]
Your editorial on Monday 4th February, 2008 highlighted a number of issues.
First, I wish to point out that those so-called Development Agreements were negotiated in bad faith; to put it mildly they were corruptly obtained by some of the mining companies. Second, no agreement can take away the sovereign right of any country to legislate in the public interest and these taxes fall within that right. The only body with power to make laws is parliament.
Windfall taxes are by their very nature temporary to take advantage of price rises.
The British Labour government soon after taking power from the Conservatives in 1997 imposed such taxes and I quote from CNN money: “The UK government raised £5 billion in 1997 when it imposed windfall taxes on privatised utilities after judging them to have made excessive profits.”
So did the UK lose the trust of investors by doing this? I do not believe so. Did the privatised utilities sue? In fact, this should be a lesson to multinationals to be more sensitive to public opinion.
Let us not lose sleep over this and the government must remain steadfast on this issue and not fall prey to lies from the multinationals.
The days of just making excessive profits to the detriment of local development will no longer be tolerated in Zambia.
Our concern now must be to ensure the government uses these extra revenues for socio-economic development and infrastructure that will attract new investment in the mines. Worrying about investor sentiment is farfetched at a time of high metal prices. If any of the foreign multinational investors decide to contest these taxes or disinvest, I would say good riddance.
There are many capable Zambians and other mining companies ready to mine in Zambia and pay the required taxes.
I strongly believe it (introducing windfall tax) is the right thing to do for the continued peaceful environment because if we do not we will regret it when people begin to take the law in their hands as it has happened in other parts of Africa.
Economics is not just about ideology or set theories; it must be a living social and political science that takes into reality the situation on the ground.
http://www.postzambia.com/post-read_article.php?articleId=37230
Lusaka floods
By Mwenya M
Wednesday February 06, 2008 [03:00]
It is sad that many residents of the capital city are faced with floods. While no one person is responsible for causing floods, we can still hold the government leaders accountable on their preparedness and response.
This clearly shows poor urban planning policy on the part of the government. Why should flood-related problems be annual events for Zambians? This is a preventable problem that would save us money and lives in the long run.
Some critics may say that most flood-hit areas are informal settlements hence not recognised by government; that’s a flawed response. All Zambians deserve better sanitation. Why then do politicians campaign in informal settlements; is the vote informal too?
It even makes it worse that the government only appropriated US$4 million to deal with the floods. That money would not have to be spent today had MMD government done its homework of fixing drainages in the first place. Political parties should not hold on to power when they are failing to deliver even simple social services to the general public. Not many Zambians have a chance to fly to dry places when Lusaka experiences floods.
http://www.postzambia.com/post-read_article.php?articleId=37273
Workplace corruption
By Evans C
Thursday February 07, 2008 [03:00]
It is true nowadays that qualifications alone cannot guarantee one a chance to get employed.
Everything is being done on a wako ni wako nepotism basis. Let’s not forget that as these favours are being dished out, a lot of money is changing hands.
These so-called facilitators of employment opportunities are being paid to recommend individuals for jobs they are not qualified for.
They are busy surrounding themselves with underperforming employees that they cannot even discipline for fear of antagonising the people who paid them to have their relatives employed. This explains why there is laxity and incompetence in most workplaces.
We continuously heap blame on the country’s leadership for failing to improve the livelihood of Zambians when the real culprits are out there unchallenged.
More money is being wasted by these greedy individuals than by the corrupt few in political circles. These thieves and traitors should be exposed and locked up.
All workplaces should be audited and employment patterns established. All those who are dubiously employed should be interrogated and booked.
We all know that times are hard for most of us, but integrity should be the number one priority for all of us. We should resist corruption no matter how tempting the circumstances may be.
It is time we started living within our means rather than tolerating activities that do not add value to our lives.
A wise person will always remember that times change and that no one is invincible; time will come for the law to flex its muscles. Be honest and live longer!.
Labels: DEVELOPMENT AGREEMENTS, FLOODS, MINING CONTRACTS, WINDFALL TAX
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Lumwana seeks clarification
By Times Reporter
LUMWANA Mining Company (LMC) is seeking clarification from the Government on whether changes to the mining fiscal and regulatory regime in the 2008 Budget will affect the development agreement signed two years ago. Lumwana managing director, Harry Michael said in Solwezi that his firm wanted to clarify whether the measures would affect the development agreement.
“If the development agreement is intact, then we can continue with our obligations,” said Mr Michael, who is one of the vice-presidents at Equinox Minerals, developers of the project.
“We are reviewing our perimeters to see if LMC are affected by the changes, we won’t be haste as we wait for confirmations on whether the changes include Lumwana,” he said.
Mr Michael said Lumwana and the 12 international banking institutions lending to the US $762 million project, which on completion would become Africa’s largest single copper mine, were doing separate internal financial revaluations on the changes.
“We and the international banks lending to the project are doing internal financial revaluations, and in the meantime we are just seeking clarifications from the Government if changes would affect Lumwana,” he said.
He said with shareholders having used up their money, the project, scheduled for commissioning mid this year, was now depending on the international banks, which were spending $1.5 million per day.
Finance Minister and National Planning Minister, Ng’andu Magande announced last Friday when he presented the 2008 Budget in Parliament the introduction of a new fiscal and regulatory regime in order to bring about an equitable distribution of the mineral wealth between the Government and the mining companies.
The move, among others, has seen the Government raise mineral royalty tax to three per cent, peg corporate tax at 30 per cent and introduce windfall taxes to be triggered at different price levels.
Labels: 2008 BUDGET, DEVELOPMENT AGREEMENTS, EQUINOX, LUMWANA MINING COMPANY, MINING CONTRACTS
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Good on mining taxation, but the rest is rhetoric
By Editor
Monday January 28, 2008 [03:00]
Ng’andu Peter Magande, last Friday presented his 2008 budget speech amid the usual pomp and ceremony. To start with, let us look back to last year. The 2007 budget theme was “From Stability to Improved Service Delivery”. To be candid, we are not at all sure if there was any significant improvement in any service delivery for the common man.
The annual budget themes, as sad as it may be, have become mere titles with little significance on either intent or delivery. Every document needs a title, so this year’s budget is titled: “Unlocking Resources for Economic Empowerment and Wealth Creation”.
As we go into the analysis of the 2008 budget, it is important to bear in mind that the legal framework for the fiscal or budget management is derived from the 1996 Republican Constitution. Civil society knows, but the government it seems does not, that there is an urgent need for constitutional reform on budget and fiscal matters.
In the year 2000, the Parliamentary Committee on Estimates tabled a constructive report on the required budget reform in Zambia. This report, like many others unanimously adopted by Parliament, still sits on the shelf without any intention to implement.
Why then, does Parliament every year go through the process of discussing and adopting Parliamentary Committee reports? Parliament alone has the constitutional authority to impose or alter taxation (Article 114(1), and to appropriate money (Article 117).
Although the Constitution does not limit the power of Parliament to amend the budget, the legislature adheres to precedence “reductions only” rule. Parliament has effectively functioned as a “rubberstamp” in budgetary matters, and currently, there is no value added, while the Public Accounts Committee is toothless.
Other than the budget speech and the economic report, there is no supplementary analysis provided with the budget. We hope that the members of the National Constitutional Conference will examine all the Parliamentary Reports on budget reform, among many other issues and seriously look into these issues when they recommend the draft constitution.
Legal and constitutional provisions should be made for the formal engagement of Parliament with policy framework that underlines budget planning well in advance of budget presentation.
This could take the form of budget policy statements presented to Parliament prior to the tabling of the budget. Only if members of Parliament are informed about ministry, departments and other policies, and how they are reflected in the budget, will they be able to assess independently whether the budget is indeed congruent with government’s stated policies. If Parliament were able to undertake shifts between votes through the amendment process, ministries and departments would be forced to justify their spending plans publicly and transparently.
The Ministry of Finance should also table cash releases figures for each subhead on a monthly basis, based on projections of actual disbursements against the approved estimates.
The new constitution is not only about presidential powers, Bill of Rights, but equally about all facets that govern the daily lives of our people, which importantly includes the way government is tasked to manage fiscal affairs through the budget process.
In analysing the 1,558 pages of the budget “Yellow Book” which carries the scanty details of the budget, what strikes us as most obvious is that it is more of the same - full consumption of our own money and mostly development with donors and loan money. Most of the social and capital projects are funded by donors and most of our own resources are spent on consumption.
Had it not been for donors and others, most of the major development and infrastructure projects and programmes of the ministries of health, education, works and supply (roads, bridges), local government, public sector reform, private sector development, agriculture, the new stadium, among other projects and programmes would not have been funded from our resources. So, where does the money go?
The total budget in 2008, including donor support, amounts to K13.761 trillion, of which K12, 525,329,778,454 is for personal and non-personal emolument programmes and K1,236,071,115, 984 for constitutional and statutory expenditures (such as paying foreign and local debts).
During 2007, both the Minister of Finance and the Secretary to the Treasury showed serious concern about budget implementation, in particular unspent balances on capital projects. Yet, the budget speech or the budget “Yellow Book” makes no mention as to what is being done or will be done to improve budget implementation.
We begin our analysis with the revenue side. Income tax, excluding mineral royalty tax is projected from K3,764,732,290,339 in 2007 to K4,081,380,000,000 in 2008. Mineral royalty tax is projected from K67,503,453,250 in 2007 to K72, 000,000,000.
The good news is that the mines are now going to be taxed in a variety of areas and in a manner that brings substantial revenue.
However, in public interest it would be good if the Minister of Finance could also give us the downside - what if the price of copper is below $2.50/lb? What would be the projected revenue for the government?
The allocation of K50 billion for financing the Citizens Economic Empowerment programme is also a good beginning. However, no one knows how this will work. And whether this will help create equity in companies for a large number of workers or a few select citizens is yet to be seen.
We do not want to see empowerment for the elite few. The devil is always in the detail, which details unfortunately are not spelt out in any budget document.
On expenditure, it all begins with the official opening of Parliament which costs the taxpayers K352 million in 2008. In addition, the budget sittings (from January to March) alone will cost the taxpayer K7,835,630,600 and K8,367,917,099 for sittings during the rest of 2008.
Most of the expenses for sittings are allowances for members of parliament. The 20 oversight parliamentary committees have been allocated K7,452,802,000 and another K8,309,247,750 for running of the Parliamentary Constituency offices.
This is now all possible, because the taxpayers in 2007 financed K19,488,047,502 to purchase motor vehicles for all members of parliament.
State House spent just over K5 billion in 2007 for transport management and have again been allocated K6 billion in 2008. This certainly is not justifiable.
What does State House, and the rest of government, do with all these motor vehicles they purchase every year? An average citizen who buys a vehicle keeps it for at least a few years, but in government there is no end to buying vehicles.
Is that development? In 2007 the Ministry of Works and Supply spent over K18 billion on buying VIP vehicles and this year another K2 billion has been allocated. Obviously the priorities are with VIP vehicles!
What is government up to? Rehabilitation of the Lusaka Independence Stadium has been allocated K28 billion. Under Cabinet Office, public affairs and summit meetings gobbled up K65 billion in 2007, and in 2008 K42 billion is allocated
A total of about K6 billion was sent for the Salaries Commission of Inquiry, whose findings are unknown as of now. Perhaps the Civil Servants and Allied Workers Union need to have a look at this before they conclude any negotiations.
In 2007 the Ministry of Home Affairs spent K21 billion to purchase motor vehicles for Zambia Police and in 2008 have been allocated another K17 billion for more motor vehicles.
The Ministry of Foreign Affairs is opening up a new embassy in Kuala Lumpur, Malaysia when all our existing missions are already badly funded and most of the buildings are an eyesore and embarrassment to Zambia. Instead of maintaining our missions, the Ministry of Foreign Affairs thought it prudent to spend K2.1 billion in 2007 for lobbying, we assume for our candidate Inonge Lewanika at the African Union. This is a very weird choice of priorities. The Ministry of Finance has allocated K5 billion for the Financial Sector Development Plan (presumably for meetings and sitting allowances) and K58 billion for “other financial restructuring” - whatever that means.
After being allocated K15 billion in 2007, the Zambia National Building Society get a further K9 billion in 2008. There is a need for a full explanation as to why the government is pouring billions into the building society? Is it technically bankrupt?
Why is the regulator of banks, the Bank of Zambia quiet on the issue of the Zambia National Building Society? Zambia Wildlife Authority (ZAWA) is also allocated K23 billion for re-capitalisation, and donors are giving an additional K13 billion funding.
So what has ZAWA been doing with the money it makes from fees and other charges? Under the Ministry of Finance, the Finance and Management Accounting department were allocated just over K1 billion for office administration in 2007 but instead spent over K7 billion and this year have allocated themselves K748 million.
Why such disparities? Under the Human Resources department of the Ministry of Finance, K12.8 billion was spent for inducement allowances and this year have allocated K14.5 billion.
Why are some selected few at the Ministry of Finance better paid than the rest? The Ministry of Justice spent over K5 billion on office administration in 2007 and in 2008 has allocated itself K1.7 billion.
The National Constitutional reforms and NCC spent K165 billion in 2007 and another K288 billion has been allocated for use in 2008. By the time this exercise is completed, Zambia is going to have one of the most expensive constitutions!
In 2007, K30 billion was allocated for the Youth Empowerment Fund. This year there is nothing. This tells us that either the money was not released on time, or the money has not been allocated for such projects. Why? We need an answer.
The Ministry of Defence headquarters in 2007 was allocated K2.67 billion for office administration, but instead spent K16.66 billion and this year have been allocated K2.7 billion. If it was for the Joint Permanent Operations, then in 2007 they had spent K12.6 billion on that, instead of the budgeted K100 million.
At Zambia Airforce, K1.7 billion was budgeted for office administration in 2007, but instead they spent K11.7 billion and this year they have been allocated K2.55 billion. Zambia Army, in 2007 was allocated K90 million for office administration but instead spent K10 billion, and this year it has been allocated K176 million. The Zambia National Service in 2007 was allocated K309 million for office administration, but instead they used K6.3 billion and this year they are allocated K498 million. There is something really fishy about all these “office administration” expenditures.
The Zambia Intelligence Service was allocated K186 billion in 2007 and this year they get K209 billion. Why on earth do they get so much money? Compare that to students’ loans awards at UNZA of K28 billion and K11.5 billion for CBU in 2008.
Clearly, there are so many such instances in the Yellow Book that require full explanation, and it is obvious to us that this is not how one unlocks resources for economic empowerment and wealth creation.
And what would be the explanation here? The answer is simple. The budget has done nothing to look at industrial input tariffs for our industry; instead government tinkered around with dyestuff and musical instruments. One cannot develop a textile industry by tweaking dyestuff tariffs!
All that sweet talk from the Minister of Commerce, Trade and Industry on industrialisation and private sector development has been simply sweet talk. One cannot charm and sweet talk, without delivering on something tangible. This is not how we are going to industrialise and maintain export competitiveness of our local industry.
Poverty reduction programmes (PRPs), as in the past, feature prominently across all ministries. However, it is highly questionable if programmes such as field trips, purchase of vehicles, personal emoluments, monitoring and evaluation, office administration, drawing up policy documents among other absurdly defined programmes can under any stretch of imagination be regarded as poverty reduction programmes.
And this is where the budget falls apart. PRP programmes should be such that they assist the poor to improve their lives and help create sustainable wealth and provide the much-needed social services. Looking at all this consumption, office administration expenditure, among others, it is no wonder that over 70 per cent of the people of Zambia still live on less than a dollar a day.
We hope that all members of parliament and civil society organisations will take time to scrutinise the Yellow Book so that they can help influence the much-needed amendments to the 2008 lopsided budget allocations.
Labels: 2008 BUDGET, DEVELOPMENT AGREEMENTS, MINING CONTRACTS, TAXATION
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Full speech: 2008 budget presentation
By Ng'andu Magande
Saturday January 26, 2008 [03:01]
BUDGET ADDRESS BY THE HON. NG’ANDU P. MAGANDE, MP
MINISTER OF FINANCE AND NATIONAL PLANNING
DELIVERED TO THE NATIONAL ASSEMBLY ON 25TH JANUARY 2008
1. Mr. Speaker, I beg to move that the House do now resolve into Committee of Supply on the Estimates of Revenue and Expenditure for the year 1st January 2008 to 31st December 2008, presented to the National Assembly in January 2008.
2. Sir, I am the bearer of a message from His Excellency the President recommending favourable consideration of the motion I now lay on the Table.
3. Mr. Speaker, over the past five years, the nation has achieved macroeconomic stability characterised by growth in the real Gross Domestic Product (GDP) in excess of 5 percent per annum, the reduction of inflation to single digit, a stable exchange rate, declining interest rates, a stable financial system, the removal of the external debt burden, and a substantial build-up in foreign exchange reserves. These achievements have resulted in notable successes in the creation of jobs and wealth, and the reduction in poverty levels.
4. Sir, our cherished and chosen vision is to be a prosperous middle income country by 2030. This will be achieved by creating a nation of dynamic, self confident and vibrant entrepreneurs. Our foremost challenge, this year and in the medium-term, is to create the fiscal space that will allow us to marshal both human and financial resources. This will enable us to accelerate the implementation of the Fifth National Development Plan.
5. Mr. Speaker, to realise this vision, the theme of this year’s budget is “Unlocking Resources for Economic Empowerment and Wealth Creation.”
6. Mr. Speaker, the preparation of this Budget has benefited from broad-based consultations with various stakeholders. This is in line with this Government’s policy of openness and transparency. I, therefore, wish to express my utmost gratitude for the valuable contributions made by various organisations and individuals.
7. Mr. Speaker, my address this afternoon comprises five parts. In Part one, I give an overview of the performance of the global economy during the past year. In Part Two, I discuss developments in the Zambian economy during the same period and this is followed, in Part three, by an outline of the Government’s economic policies for 2008. In Part Four, I present details of the 2008 Budget. Finally, in Part Five, I conclude my address.
PART 1
PERFORMANCE OF THE GLOBAL ECONOMY IN 2007
8. Mr. Speaker, preliminary estimates indicate that the world economy registered a robust real GDP growth of about 5.0 percent, largely driven by strong expansion in China, India and Russia. These favourable developments mitigated the lower growth recorded in the advanced economies, especially the United States, which experienced a significant reduction in investments in residential property.
9. Mr. Speaker, this sustained growth in the world economy continued to drive the price of commodities upwards, with oil prices reaching record levels. Further, lower oil production by the Organization of Oil Producing and Exporting Countries (OPEC), and a smaller rise in oil output in non-OPEC countries contributed to the high oil prices.
10. Sir, the prices of non-fuel commodities similarly increased during the year, with copper prices rising by 12.6 percent to US $3.15 per pound.
11. Sir, in 2007, Africa posted real GDP growth of 5.7 percent, a modest 0.1 percentage points above the growth recorded in 2006. However, Sub-Saharan Africa recorded a robust real GDP growth rate of 6.1 percent, which was 0.4 percentage points above the 2006 level.
12. Sir, on balance, these global developments had a positive impact on Zambia’s terms of trade.
PART II
PERFORMANCE OF THE DOMESTIC ECONOMY IN 2007
MACROECONOMIC PERFORMANCE
13. Mr. Speaker, preliminary estimates indicate that the macroeconomic outturn was satisfactory. The growth in real GDP continued to be positive at a preliminary estimate of around 6.2 percent, which was lower than the target of 7 percent. This was mainly on account of the lower than projected growth in the primary and secondary sectors of the economy.
14. Mr. Speaker, despite the adverse external shocks associated with high international oil prices, an end of the year single digit inflation rate was achieved for the second year running. As at end-December 2007, annual inflation was 8.9 percent, which was consistent with the revised target of 9 percent but was above the 8.2 percent achieved in December 2006.
15. Mr. Speaker, with regard to the fiscal outturn, a strong revenue performance and the slow utilisation of resources by Government institutions explains the lower domestic borrowing. Preliminary estimates indicate that in 2007, domestic borrowing amounted to K437 billion or 0.95 percent of GDP against the target of 1.2 percent.
16. Mr. Speaker, Zambia’s external position remained positive during the year under review. This was reflected in the strong build-up of Gross International Reserves (GIR) to US $1,080.2 million or 3.6 months of import cover against the target of 2.5 months.
EXTERNAL SECTOR DEVELOPMENTS
17. Mr. Speaker, preliminary information indicates that, in 2007, external sector developments were largely positive. The overall balance of payments recorded a positive balance of US $266.3 million compared to US $821 million in 2006. The current account balance recorded an estimated deficit of US $856 million, compared to a surplus of US $120 million in 2006. This was largely accounted for by a higher deficit in the income account.
18. Sir, the current account deficit was financed by increased external capital inflows in the form of foreign direct and portfolio investments of US $853.5 million and project grants of US $153.6 million.
19. Sir, although the trade surplus declined to US $686.4 million from US $1,183 million in 2006, both total exports and imports increased. Total exports increased by 11.9 percent to US $4,273.4 million compared to the US $3,819 million recorded in 2006. However, imports rose at a higher rate of 37.4 percent to US $3,622.3 million, largely on account of increased investment in the mining sector.
20. Sir, metal exports rose by 10.2 percent to US $3,400.3 million whilst non-traditional exports were 24.5 percent higher, at US $924.4 million, largely due to the growth in the economies of our trading partners.
EXTERNAL DEBT
21. Mr. Speaker, preliminary information indicates that the stock of external debt increased by 9.5 percent to US $2,035.2 million in 2007 from US $1,859.0 million in 2006. The increase was largely accounted for by the 16.7 percent growth in private sector external debt to US $980.7 million, related to investment in plant and machinery by mining companies. The stock of Government external debt increased by 3.5 percent to US $1,054.5 million in 2007 from US $1,019.0 million in 2006, mainly due to new disbursements to support the budget.
22. Sir, the amount of US $635 million reported in last year’s Budget was adjusted upwards during the year. This adjustment was to reflect undelivered HIPC Initiative debt relief from some of the bilateral creditors with whom we have not yet reached agreement.
FOREIGN FINANCING
23. Mr. Speaker, in 2007, foreign financing continued to compliment our domestic resources. In this regard, our co-operating partners disbursed a total of US $503.6 million. Of this amount, US $356.1 million was disbursed as project support while US $147.5 million was for direct budget support. Project support comprised US $125.8 million for Sector Wide Approach Project Support (SWAPS), US $153.6 million for project grants and US $76.7 million for project loans.
24. Sir, on behalf of the Zambian people and, indeed on my own behalf, I wish to sincerely thank our cooperating partners for their continued support to our development agenda.
DOMESTIC DEBT
25. Mr. Speaker, preliminary figures show that the stock of domestic debt and other public liabilities declined by 7.1 percent to an estimated K8,885.5 billion in 2007. The decrease was primarily on account of a decline in the stock of domestic arrears to suppliers of goods and services and the Pension Fund.
26. Sir, domestic arrears to road contractors and other suppliers of goods and services fell by 16.5 percent to K370.5 billion while the stock of pension arrears were reduced by 31.9 percent from K396.5 billion in 2006 to K269.9 billion in 2007.
27. Mr. Speaker, the stock of Government securities increased by 11.6 percent to K6,966.1 billion in 2007, compared to an increase of 25.7 percent in 2006. The increase in the stock of Government securities was on account of the rise in the stock of Government bonds by 20.7 percent to K3,904.8 billion and Treasury bills, which rose by 1.8 percent to K3,061.3 billion. This partly reflects intensified monetary operations by the Bank of Zambia to contain liquidity pressure arising from the accumulation of international reserves.
MONETARY AND FINANCIAL SECTOR DEVELOPMENTS
28. Mr. Speaker, monetary and financial sector developments continued to be favourable during the year. Inflation was contained within single digit, money supply growth slowed down, commercial bank lending rates continued to trend downwards, and the financial sector remained sound.
29. Sir, the 2007 single digit inflation was reflective of an appropriately firm monetary policy stance and a favourable fiscal outturn. In addition, the appreciation of the Kwacha against major international currencies further dampened inflationary pressures.
30. Mr. Speaker, preliminary estimates show that annual money supply growth slowed to 25.9 percent in December 2007 from 45.1 percent in December 2006. This was largely due to the reduction in the Government borrowing from the banking system by 21.6 percent. However, lending to the private sector registered a strong growth of 44.5 percent.
31. Sir, in an effort to further reduce the cost of funds, in October 2007, the Bank of Zambia significantly reduced the statutory reserve ratio on Kwacha and foreign currency deposit liabilities from 14 percent to 8 percent.
32. Mr. Speaker, the composite weighted average yield rates on Treasury bills and Government bonds rose to 13.4 percent and 15.6 percent, in December 2007 from 9.2 percent and 12.6 percent in December 2006, respectively. This was largely due to efforts by the Bank of Zambia to contain money supply growth and inflationary pressures.
33. Sir, in line with falling inflation, commercial banks’ lending rates fell to 24.4 percent in December 2007, from 27.9 percent in December 2006. However, commercial bank interest rates remained relatively high contrary to the Government’s expectations. Lack of positive cooperation seems to indicate the failure of liberalisation and market forces.
34. Mr. Speaker, in 2007, the Bank of Zambia also continued to consolidate financial system stability by enhancing supervision of the financial sector. As a result, the performance of the banking sector remained sound and was well capitalised, profitable and liquid while the performance of the non-bank sector was fair.
35. Sir, other significant developments in the sector during the year included the commencement of operations by the first credit reference bureau early in the year. It is expected that once fully operational, the Bureau will assist in improving the credit culture in the country. Further, the National Payment Systems Act was enacted in June 2007.
CAPITAL MARKET DEVELOPMENTS
36. Mr. Speaker, the Lusaka Stock Exchange continued to record impressive gains in 2007. Market capitalization in Kwacha terms rose by 31.6 percent to K17,206.1 billion whilst in US dollar terms it rose by 41.2 percent to US $4.5 billion.
37. Sir, the other notable development was the Government’s introduction of longer dated bonds of 7, 10, and 15-year tenors. The introduction of these longer dated securities will help deepen the financial markets, by extending the yield curve and providing benchmark rates for the market.
SECTOR PERFORMANCE
AGRICULTURE
38. Mr. Speaker, preliminary data show that the agriculture sector grew by 2.8 percent in 2007 compared to a growth of 3.0 percent in 2006. The slower growth in the sector was due to poor prices for crops such as cotton and tobacco. Nevertheless, for the second consecutive year, a food surplus was achieved with cumulative stocks reaching 628,396 metric tonnes.
MINING AND QUARRYING
39. Mr. Speaker, the mining sector registered positive growth in 2007, albeit at a slower rate. Preliminary figures show that copper production increased by 1.5 percent to 523,435 metric tonnes from 515,618 metric tonnes in 2006. However, cobalt production declined by 9 percent, to 4,229 metric tonnes in 2007 from 4,648 metric tonnes in 2006. The slow down in the metal output was mainly on account of flooding at some of the mines in the first half of the year.
CONSTRUCTION
40. Sir, preliminary data indicate that the construction sector continued to register positive growth of 13.3 percent in 2007, slightly lower than the 14.4 percent recorded in 2006. The favourable performance in the sector continues to be driven by construction of residential housing, investments in the mines, road construction and other civil works, reflecting strong economic growth and rising incomes.
MANUFACTURING
41. Mr. Speaker, the manufacturing sector recorded a positive growth of 3.4 percent. This growth was broad-based with increased value addition in most of the sub-sectors. However, the growth was lower than the 5.7 percent recorded in 2006. This was mainly on account of the negative growth in the textiles and leather sub-sector.
TOURISM
42. Sir, the performance of the tourism sector was encouraging. The number of tourists coming into the country is estimated to have increased by 6.4 percent to 805,059 in 2007. This resulted in an increase in room and bed occupancy, number of beds and employment levels. In turn, the sector’s earnings increased to an estimated US $188 million from US $177 million in 2006.
ENERGY
43. Mr. Speaker, the energy sector faced a number of challenges related to the supply of electricity and petroleum products in the face of increased demand. Electricity generation increased marginally to 9.7 million megawatt hours from 9.6 million megawatt hours in 2006. This was due to the power rehabilitation works being undertaken by ZESCO. In the petroleum sub-sector, supply was generally reliable despite the shutdown of the INDENI Oil Refinery for rehabilitation works. The move by the Government to allow oil marketing companies to import finished petroleum products eased disruptions in supply.
TRANSPORT AND COMMUNICATIONS
44. Mr. Speaker, the transport, storage and communications sector continued to perform positively, with output increasing by 22.5 percent compared to 22.1 percent in 2006. A robust expansion was recorded in all the sub-sectors, except for rail transport, which recorded negative growth, mainly on account of the poor state of the rail infrastructure.
SOCIAL SECTOR DEVELOPMENTS
EDUCATION
45. Mr. Speaker, in 2007, the Government recruited and placed 10,600 teachers in various schools in the country. This was augmented by a countrywide distribution of textbooks and other school requisites. In addition, the Government continued with the programme of rehabilitation and construction of class rooms and teachers’ houses. In this regard, construction of 31 high schools commenced country-wide.
46. Sir, the Government also enrolled a total of 452,974 pupils in grade one, a 2 percent increase from the previous year. In relation to gender, more female children accessed education in the first grade than their male counterparts.
47. Mr. Speaker, with regard to tertiary education, the Mulungushi University was established as the third public university in the country. In addition, the Government continued with the programme of rehabilitation and development of infrastructure across the country. This programme included works at the University of Zambia, Copperbelt University, Evelyn Hone College and trades training institutes.
48. Sir, this is a true demonstration of the Government’s commitment to improving the standard of education for the future generation.
HEALTH
49. Mr. Speaker, the focus of the Government in 2007 was to provide access to quality health care. In this regard, the Government abolished user fees in 54 rural districts and recruited over 1,100 frontline medical personnel.
50. Sir, in addition, the Government continued with the programme of infrastructure rehabilitation and development. An x-ray theatre and maternity wing were completed at Samfya whilst construction works for the new hospitals in Chadiza and Mumbwa reached an advanced stage. Other programmes included the construction of 33 health posts in various districts across the country. Further, the Cancer Disease Hospital was commissioned and has currently over 300 patients on treatment. This number is expected to rise to 1,800 patients this year as more patients become aware of the availability of the facility.
51. Sir, the provision of essential drugs and medical supplies was scaled up in 2007 with Medical Stores Limited making 83.5 percent of its deliveries on time. However, there is an urgent need to institute effective measures to safeguard medicines and hospital equipment once they are delivered to health institutions.
HIV/AIDS
52. Mr. Speaker, the HIV/AIDS pandemic continues to be a major challenge as it mostly affects the productive age groups. In 2007, the number of cases diagnosed increased to 30,960 from 29,515 in 2006.
53. Sir, the Government continued to make headway in ensuring that more of our people living with HIV/AIDS have access to anti-retroviral therapy. In this regard, a total of 137,000 patients accessed free anti-retroviral therapy countrywide compared to 75,000 in 2006.
STRUCTURAL REFORMS
54. Mr. Speaker, the Government continued to implement reforms under the Public Expenditure Management and Financial Accountability (PEMFA), Public Service Management (PSM), Financial Sector Development Plan (FSDP) and the Private Sector Development (PSD) Initiative. With regard to PEMFA, progress has been made in providing the required environment and resources for the reforms. In 2007, the key milestones included the following:
(a) The IFMIS Solution provider came on board and the design and implementation of the system started;
(b) Data collection for the economic census commenced. This will improve the National accounts statistics compiled annually; and
(c) Three provincial offices for the Auditor-General’s Office were constructed and completed in Solwezi, Mongu and Kasama to increase audit coverage.
55. Mr. Speaker, under the Financial Sector Development Plan (FSDP), the Government launched the Rural Finance Programme last year to improve access to financial services particularly in the rural areas. The programme will be private sector driven.
BUDGET PERFORMANCE IN 2007
56. Mr Speaker, the overall budget outturn in 2007 was strong despite challenges in the execution of capital projects. Preliminary figures indicate that total resources mobilised, including borrowing to cover the budget deficit, amounted to K10,720.1 billion. Of this amount, revenues and grants accounted for K10,176.1 billion while K544.0 billion or 1.2 percent of GDP was borrowed. Total expenditure releases at K10,720.1 billion accounted for 89.7 percent of the Budget. An amount of K8,794.1 billion or 81 percent of the total expenditure releases were directed towards current expenditure while K1,926.0 billion or 19 percent was absorbed by capital expenditures.
57. Sir, domestic revenue collections at K8,522.1 billion were above target by K405.0 billion or 5 percent. Higher company tax and import VAT receipts largely accounted for this performance. Grant receipts from cooperating partners amounted to K1,654.1 billion, out of which K581.9 billion was direct budget support. Direct Budget Support receipts were above target by 10 percent, reflecting the support that this Government continues to enjoy from our cooperating partners.
58. Mr. Speaker, due to the slow absorption by the Ministries, Provinces and other Spending Agencies, the 2007 Budget allocations could not be disbursed in full. This was, in part, a reflection of capacity constraints within spending agencies and contractors in the private sector, delayed procurement, and structural factors associated with the Budget cycle.
59. Mr. Speaker, for domestically financed expenditures, General Public Services accounted for the largest share at 36.6 percent, followed by the social sector at 33.8 percent and Economic Affairs at 14.5 percent. Other functions accounted for the balance.
60. Sir, General Public Service releases, which are primarily activities of an operational nature for the general running of Government, amounted to K3,487.3 billion, representing 93.5 percent of the target. Of this amount, K959.5 billion went towards the payment of domestic and external debt, reflecting the Government’s commitment to meet its debt obligations.
61. Mr. Speaker releases towards the economic affairs function amounted to K1,384.4 billion, representing 98.3 percent of the target. Of this amount, K1,175.0 billion or 84.9 percent went to Agriculture, Forestry, Fishing, and Transport.
62. Sir, these releases covered the following main programmes; the Fertiliser Support Programme, Strategic Food Reserve Programme, Food Security Pack, Farm Mechanisation and Irrigation Fund. Other programmes included the construction and rehabilitation of roads, for which K419.8 billion was released.
63. Mr. Speaker, total releases to the social sectors amounted to K3,220.7 billion, representing 99.2 percent of the target. Out of this amount, Education accounted for 54.4 percent, Health 24.9 percent, Housing and Community Amenities 9.2 percent and Social Protection 8.2 percent.
PART III
ECONOMIC AND SOCIAL POLICIES FOR 2008
Macroeconomic Policies for 2008
64. Mr. Speaker, having stabilised the macroeconomic environment, the key challenges are to transform these positive developments into improved living standards, more jobs and sustained broad based economic growth.
65. Sir, these developments have already started impacting on poverty levels. The statistics from the Living Conditions Monitoring Survey of 2006 indicate that poverty levels dropped to 64 percent in 2006 from 68 percent in 2004. The statistics also show that during this period, urban poverty dropped from 53 percent to 34 percent whilst there was an increase in rural poverty from 78 percent to 80 percent.
66. Mr. Speaker, these facts challenge us to consolidate the measures that have led to the significant reduction in urban poverty and to redouble our efforts to arrest and reduce the high levels of rural poverty. I want to assure you, Sir, that the Movement for Multi-Party Democracy (MMD) Government stands ready to meet this challenge. An immediate programme for this year is the rehabilitation of the damaged rural roads which will be done once we receive the road equipment in March. This should open up the rural areas for more and viable investments to uplift the living standards of our people.
67. Sir, the dramatic decline in urban poverty has taken place during the period in which annual economic growth has consistently been above 5 percent. Therefore, achieving higher levels of economic growth is an important weapon in the fight against poverty. Further, the execution of the Budget needs to be improved. This is particularly relevant with respect to the programmes that focus on the development of the rural areas.
68. Mr. Speaker, against this background, the Government’s macroeconomic objectives for 2008 are to:
(a) achieve real GDP growth of at least 7 percent;
(b) bring down end-year inflation to no more than 7 percent;
(c) limit domestic borrowing to 1.2 percent of GDP; and
(d) maintain the coverage of gross international reserves at no less than 3.6 months of import cover.
69. Mr. Speaker, attaining the growth objective in 2008 demands that the private sector must play a stronger role in economic development. It is also imperative that Zambians, through the Citizens Economic Empowerment Programme, participate fully in the various economic activities. In addition, availability and access to credit will need to be enhanced. On our part as Government, we will continue to focus on implementing structural reforms and providing infrastructure so as to lower the cost of doing business.
FISCAL POLICIES
70. Mr. Speaker, the objective of the Government in 2008 is to continue to consolidate fiscal discipline by maintaining lower levels of borrowing and prudent budget execution. This will entail improved cash and treasury management, enhanced domestic resource mobilisation and effective coordination with the monetary authorities.
BUDGET EXECUTION
71. Mr. Speaker, in 2008, the Government will improve capacities of Ministries, Provinces and other Spending Agencies to evaluate and implement capital projects on time.
72. Sir, the budget for 2008 is being presented one week before the end of January. This breaks our past tradition when the budget has been presented in February. This demonstrates the resolve of the Government to quicken the implementation of project execution. As we plan to improve the capacities of Ministries, Provinces and other Spending Agencies in project implementation, I wish to appeal that this august House also breaks a record by approving the estimates by end of February 2008.
DEBT AND AID POLICIES
73. Mr. Speaker, the Government’s long-term debt management objective will be to raise adequate levels of financing at minimum cost and risk. In addition, we will pursue strategies to ensure that the national public debt is maintained at sustainable levels over the medium to long term.
74. Sir, with respect to domestic debt, the Government will place emphasis on settlement of domestic arrears, specifically to the Public Service Pension Fund and suppliers of goods and services. On the external debt front, the Government’s strategy will be to source external funds, when required, on concessional terms and ensure that any new borrowing does not undermine debt sustainability. The Government will also intensify efforts to consolidate the legal framework governing the contraction and management of debt.
75. Mr. Speaker, the Government adopted the Aid Management Policy in 2007. The objective of the Policy is to ensure that the country has a clear, systematic and well co-coordinated approach to acquire, utilize and manage aid. This will involve regular reporting, monitoring and evaluation of the aid to ensure effective implementation of the Fifth National Development Plan. Through the Joint Assistance Strategy with our cooperating partners, we shall be receiving aid in a coordinated fashion and in a manner that will reduce the transaction costs of such aid to Government.
_MONETARY AND FINANCIAL SECTOR POLICIES__
76. Mr. Speaker, the overriding objective of monetary policy in 2008 will be to maintain single digit inflation for a third consecutive year. In this regard, a key challenge will be to enhance coordination between fiscal and monetary policies so as to effectively manage liquidity and maintain macroeconomic stability.
77. Sir, financial sector policy in 2008 will remain focused on maintaining financial system stability and on developing and deepening the financial sector. With regard to financial system stability, the Bank of Zambia will introduce risk based supervision. In addition, the Government will continue with the recapitalisation of state-owned non-bank financial institutions so as to enhance the stability of the financial system.
78. Sir, the external sector environment is projected to remain favourable and the foreign exchange market is expected to remain relatively stable. This will support the attainment of the foreign reserve target. However, external shocks such as high oil prices and adverse weather conditions are likely to present a challenge in attaining the inflation and reserves objectives.
KEY SECTOR POLICIES AND INTERVENTIONS
ECONOMIC SECTORS
AGRICULTURE
79. Mr. Speaker, agriculture remains a key sector for the nation’s economic development. The focus in 2008 will be on improved cash crop production, livestock and fisheries development. Programmes that enhance crop production such as the Fertilizer Support Programme and irrigation development will continue to be supported. In livestock development, key programmes will include active disease monitoring and control, and restocking of livestock.
80. Mr. Speaker, under fisheries development, the key strategy is to ensure compliance with fisheries regulations so as to reduce the depletion of fish in our main water bodies. In addition, aquaculture development, especially by women, will be encouraged.
MINING
81. Mr. Speaker, investment in the mining sector, on the back of the high global commodity prices, has been an important engine of economic growth for Zambia. This investment has involved not only the establishment of new mines but has also attracted additional investments in mineral exploration, with very promising results.
82. Sir, in 2008, the role of the Government in the mining sector will continue to be that of providing an enabling environment for private sector led investment. In this regard, as announced by His Excellency the President during the opening of the 2nd Session of the 10th National Assembly, the Government will be introducing a new fiscal and regulatory framework for the mining sector.
83. Mr. Speaker, the mining sector under this framework will begin to adequately contribute to the advancement and the social and economic welfare of the people of Zambia. At the same time, the new regime will secure an appropriate return on investment by mining companies. The additional revenues arising from the new mining tax regime will be set aside and a clear and transparent mechanism for their utilisation will be established.
84. Sir, the proposed framework will also ensure transparency in the accounting and utilisation of mineral revenues and also protect the rights of all those investing in the mining sector.
85. Sir, another major policy intervention in 2008 will be to review the Petroleum (Exploration and Production) Act of 1985. Recent developments in this area have highlighted the inadequacy of this legislation in securing our national interests in the sector. The objective is to lay the groundwork for the eventual prospecting and production of oil.
TOURISM
86. Mr. Speaker, the Government will continue to undertake infrastructure development in the sector so as to improve accessibility to tourist destinations. In addition, resources will be made available to enhance the sustainability and conservation of Zambia’s wildlife and its eco-systems. In particular, in 2008, we will begin the recapitalisation of the Zambia Wildlife Authority so as to improve its operations.
87. Sir, investment by both domestic and foreign investors will also be enhanced by implementing the provisions of the new legislation with respect to the tourism sector. The legislation provides for the creation of a one-stop shop to licence investors in the sector, and thus reduce the cumbersome licensing procedures.
ENERGY
88. Mr. Speaker, addressing the looming energy deficit is a major challenge facing our nation. In this regard, expanding electricity generation is critical in order to support private sector growth and to counterbalance the expected power shortage in the country and the region as a whole.
89. Sir, works on the Kariba-North Bank Extension and the Itezhi-Tezhi Projects are due to commence this year. In addition, the finalisation of the Rural Electrification Master Plan will help identify energy options in rural areas and provide a framework to increase accessibility.
90. Mr. Speaker, in the petroleum sub-sector, the Government will continue with measures aimed at further stabilising the supply of petroleum products. In this regard, a mechanism to supply crude feed stock to the INDENI Oil Refinery over the next two years has been put in place and will be fully operational this year.
SOCIAL SECTORS
EDUCATION
91. Mr. Speaker, the Government’s focus in the education sector will continue to be on the recruitment of teachers and infrastructure development. As a retention strategy, the Government will develop a number of schemes to improve the environment for teachers in rural areas. Further, to increase enrolment of children in schools, the Government will construct more classrooms both at basic and high school levels.
HEALTH
92. Mr. Speaker, it is critical to improve the provision of health services so as to raise and sustain the productivity of our people. The Government will, therefore, continue to invest in the sector in order to improve the supply, distribution and management of drugs and other medical supplies.
93. Sir, the Government will focus on the recruitment of frontline medical personnel and infrastructure development. One of the key strategies in infrastructure development will be the expansion of the capacity of training institutions to increase their enrolment levels.
STRUCTURAL REFORMS
94. Mr. Speaker, implementation of structural reforms will be stepped up in order to support private-sector-led growth and strengthen public sector management. The slow pace in the implementation of structural reforms in the recent past has compromised the ability of the Government to effectively drive the development agenda. In addition, it has impeded the development of the private sector.
95. Sir, implementation of the Financial Sector Development Plan (FSDP), Public Service Management (PSM), Public Expenditure Management and Financial Accountability (PEMFA), and the Private Sector Development (PSD) Initiative will be quickened. Under the PEMFA programme, the Integrated Financial Management Information System (IFMIS) pilot sites will “go live” in 2008. In addition, the Treasury functions will be strengthened in order to improve cash and expenditure management by introducing more efficient payment systems. This will improve overall budget execution.
96. Sir, the Financial Sector Development Plan aims to address weaknesses in the financial sector. In 2008, a key milestone under this programme will be to obtain a sovereign credit rating for Zambia. This will, among other advantages, aid in deepening the financial market by enhancing access to the international capital markets by both the Government and the private sector. In addition, the Government is reviewing legislation in an effort to strengthen the financial sector.
PART IV
THE 2008 BUDGET
97. Mr. Speaker, in 2008, the Government proposes to spend a total of K13,761.4 billion or 26.7 percent of the GDP estimated at K51,559.0 billion. Of this amount, K9,828.4 billion or 71.4 percent will be financed by domestic revenues while K2,278.9 billion or 16.6 percent will be grants from our cooperating partners.
98. Sir, the balance of 12.0 percent is the deficit of K1,654.0 billion or 3.2 percent of GDP. This will be financed by domestic borrowing of K618.8 billion or 1.2 percent of GDP and external financing of K1,035.3 billion or 2.0 percent of GDP.
99. Mr. Speaker, I now present details of expenditure and revenue measures for the 2008 Budget.
EXPENDITURE MEASURES
100. Mr Speaker, expenditures under the General Public Services, Education and Health functions will remain high in 2008. As a percentage of the total expenditure, General Public Services will account for 32.8 percent, Education 15.4 percent and Health function 11.5 percent. The allocation to the Economic Affairs function is projected at 16.7 percent while that to Defence and Public Order and Safety is 7.1 percent and 4.2 percent, respectively.
101. Sir, the summary of the 2008 expenditure is as follows:
GENERAL PUBLIC SERVICES
102. Mr. Speaker, under the General Public Services function, the Government has made a provision of K4,514.2 billion. Of this amount, General Government Services will account for 59.6 percent, Legislation 14.5 percent, Centralised Administrative Services 11.8 percent and Executive 8.0 percent.
103. Sir, one of the key programmes under this function is debt management. As such, the Government has provided K720.0 billion to meet domestic and external debt payments. A provision of K350.5 billion has also been made for payment of arrears. This is in line with the Government’s policy to dismantle a substantial amount of arrears owed to suppliers of goods and services so as to free resources for developmental programmes. Further, an allocation of K100.0 billion has been provided for Awards and Compensation for payment of court judgements and litigations against Government.
104. Sir, other key provisions include K309.4 billion for facilitating the constitutional review process, K103.0 billion for grants to Local Authorities and K60.0 billion for Constituency Development Fund. A further K90.7 billion has been provided for contingency reserve meant to cater for unforeseen and unavoidable expenditures. The balance will go towards regular Government operations.
PUBLIC ORDER AND SAFETY
105. Mr. Speaker, the Government proposes to spend K581.8 billion or 4.2 percent of the total budget on the Public Order and Safety function. Of this amount, K437.0 billion will be for police services. Other sub- functions such as law courts, prisons, immigration, passports and national registration function will account for K144.8 billion.
106. Sir, an amount of K60.0 billion has been provided for construction of houses for the police and K24.0 billion for prison infrastructure development and rehabilitation. Further, in order to enhance policing, the Government has provided K15.0 billion for the recruitment of 1,500 police officers.
ECONOMIC AFFAIRS
107. Mr Speaker, expenditure on Economic Affairs is projected to be K2,300.8 billion. Of this amount, the Transport sub-function will account for 51.4 percent, Agriculture, Forestry and Hunting 34.8 percent, General Economic, Commercial and Labour Affairs 6.3 percent while the balance will be accounted for by Fuel and Energy, Tourism and Mining sub-functions.
108. Sir, under Transport, the Government has provided K1,181.4 billion. Of this amount, K1,110.7 billion is for road construction, rehabilitation and maintenance, K40.0 billion for the up-grading of Solwezi and Kasama airports and K10.0 billion for the completion of the Chipata-Mchinji rail line.
109. Sir, under the Agriculture, Forestry, Fishing and Hunting sub-function, K185.0 billion has been provided for the Fertilizer Support Programme to small scale farmers to mitigate the high cost of farming inputs. An amount of K10.0 billion has been set aside for the Food Security Pack to assist the vulnerable but viable rural farmers and K80.0 billion has been provided for purchase of agricultural products by Food Reserve Agency, particularly from outlying areas. Further, the Government has provided K24.4 billion and K38.0 billion for fisheries development and control of livestock diseases, respectively.
110. Mr. Speaker, out of the K145.0 billion allocated under the General Economic Affairs function, K50.0 billion has been set aside for the Citizens Economic Empowerment Fund to facilitate entrepreneurship development in the country. This is in addition to last year’s provision, which is still available with the Fund.
111. Other programmes under the Economic Affairs function include K23.0 billion for the recapitalisation of the Zambia Wildlife Authority, K21.5 billion for Rural Electrification Fund and K6.8 billion to facilitate the development of Lusaka-South Multi Facility Economic Zone.
EDUCATION
112. Mr. Speaker, under the Education function, Government has provided K2,118.5 billion or 15.4 percent of the budget. Some of the key activities to be undertaken are the recruitment of teachers, procurement of educational materials and construction of classrooms and teachers’ houses. It is estimated that the Government will recruit 5,000 teachers in 2008.
113. Sir, in addition K350.0 billion has been set aside for infrastructure development. Among the major projects will be the construction of 31 high schools and an extra 1,500 classrooms in line with the Government’s policy of enrolling all seven year old children in grade one.
114. Sir, the Government will also provide resources to upgrade infrastructure and support operations at the newly established Mulungushi University. Additional resources will be provided to upgrade Nkrumah and Copperbelt Secondary School Teacher Training Colleges so that they are able to offer degree programmes.
HEALTH
115. Mr. Speaker, total expenditure on health will amount to K1,586.6 billion or 11.5 percent of the total Budget. This allocation is essential to improve the provision of quality health care. Sir, Government has allocated K117.5 billion for infrastructure development. Key programmes will be the expansion, construction and rehabilitation of district hospitals and health centres as well as housing for the rural medical personnel. In addition, K113.5 billion has been allocated for the procurement of essential drugs. Further, K24.7 billion has been provided for the recruitment of 1,700 health workers.
HOUSING AND COMMUNITY AMENITIES
116. Mr. Speaker, the Government plans to spend K830.6 billion on the Housing and Community Amenities function. A key element of this function is the improvement of water supply and sanitation. In this respect, the Government has allocated K399.8 billion to improve access to safe drinking water, particularly in rural and peri-urban areas. Other programmes such as resettlement, community development, street lighting and the administration of these programmes have been allocated K431.0 billion.
SOCIAL PROTECTION
117. Mr. Speaker, the Government proposes to settle all pension arrears in 2008. This will be achieved by increasing the allocation to Social Protection to K577.7 billion. Of this amount, K435.9 billion will be for the complete payment of pension arrears and meeting the current obligations to the Public Service Pension Fund. The balance of K141.8 billion will go towards other social protection programmes such as the care for the aged, orphaned and vulnerable children.
REVENUE ESTIMATES AND MEASURES
REVENUE ESTIMATES
118. Mr. Speaker, over the past years, the MMD Government has made significant progress in modernising tax policy and administration. The Government remains committed to establishing a broad-based tax structure that is predictable, simpler, fairer and efficient. This will help deliver lower taxation levels while at the same time securing more resources to finance development programmes.
119. Sir, in 2008, domestic revenues are projected at K9,828.5 billion or 71.4 percent of the budget. Tax revenues estimated at K9,133.6 billion represent 66.4 percent of the total Budget, while non-tax revenues at K694.9 billion represent 5 percent.
120. Mr. Speaker, the summary of the estimated revenue, grants and financing is as follows:
REVENUE MEASURES
DIRECT TAXES
121. Mr Speaker, there has been an understandable concern that the tax burden is high. As a responsible Government, we are mindful of the burden of taxation on our workers especially those in the lower income groups. In order to reduce the tax burden, I propose to revise the Pay-As-You-Earn by increasing the non-taxable monthly threshold income from K500,000 to K600,000. The following is the proposed Pay-As-You-Earn regime:
122. Sir, this measure will give tax relief to workers in formal employment earning below K4,535,000 per month. The measure will result in a revenue loss of K64.8 billion, which will go in the pockets of the workers.
123. Mr. Speaker, currently, the interest paid on mortgage for residential property is not tax deductible. The Government fully recognises the aspiration of most families to construct or purchase their own houses. I, therefore, propose to allow mortgage interest to be deductible for tax purposes to any Zambian individual who obtains a mortgage for residential property. It is envisaged that this concession will encourage home ownership.
124. Mr. Speaker, I also propose to increase the low cost housing unit capital expenditure limit for tax purposes from K2 million and K10 million to K20 million. This is meant to encourage employers to build decent housing units for their employees, particularly, in the agriculture sector. This measure will have a minimal revenue loss.
125. Mr. Speaker, in an effort to encourage savings and streamline the collection of withholding tax on interest earned on savings and deposit accounts, I propose to reduce the withholding tax rate applicable from 25 percent to 15 percent. I also propose to abolish the exempt portion of the interest, which is not subject to withholding tax. This measure has minimal revenue impact.
126. Mr, Speaker, last year, this august House approved the proposal to increase the tax credit applicable to persons who are differently-abled from K36,000 per annum to K144,000 per annum. The Government believes that this increase was insufficient. I, therefore, propose an additional increase so that the threshold will now be K600,000 per annum.
127. Sir, I further propose to increase the allowable deduction for any employer who employs a differently-abled person from K500,000 per annum to K1,000,000 per annum for each such person employed. There will be minimal revenue loss as a result of this measure.
128. Mr. Speaker, all the above measures will take effect on 1st April, 2008.
CUSTOMS AND EXCISE
129. Mr. Speaker, in order to support the manufacturing sector, I propose to reduce customs duty on the following: (a) dyestuffs under HS code 3204, glycerine under HS code 1502 from 5 percent to free; and (b) mechanical horses for semi-trailers from 15 percent to 5 percent.
130. Mr. Speaker, in 2006, the Government reduced customs duty on pancakes in order to promote the music industry. This year, I propose to give further concessions to the industry by reducing duty on other musical instruments and art equipment falling under tariff heading 32, 92 and 96 from 15 percent to zero, and those under heading 85 from 15 percent to 5 percent.
131. Sir, the two measures above will result in an estimated revenue loss of K2.2 billion.
132. Sir, in order to encourage local value addition, I propose an export levy of 15 percent on the export of copper concentrates and cotton seed. This is in recognition of the availability of local capacity to process these products. This measure will result in an estimated revenue gain of K148.7 billion.
133. Mr. Speaker, all the above measures will become effective from midnight, tonight.
VALUE ADDED TAX
134. Sir, currently books are exempt from VAT. This means that local manufacturers of books cannot claim input VAT and this makes local manufacturers less competitive. I, therefore, propose to zero rate books for VAT purposes to make the local manufacture of books less costly. The measure will result in a revenue loss of K1.7 billion.
135. Mr. Speaker, infant formula is a major nutritional supplement for babies. Given that infant formula attracts VAT, it makes the product unaffordable to many families. I, therefore, propose to exempt infant formula for VAT purposes. The measure will result in a revenue loss of K2.1 billion.
136. Mr. Speaker, Zambia is becoming a premier international tourist destination offering a wide range of spectacular tourist activities. In order to attract more tourists, I propose to extend the list of zero rated supplies to include new activities such as elephant back safaris, steam train excursions and walking with lions. The revenue loss is minimal.
137. Sir, all the above measures will take effect from midnight, tonight.
138. Mr. Speaker, the issue of the 17.5 percent standard rate of the Value Added Tax is a matter on which I have received numerous representations for many years. I have always promised that I will respond when the economic conditions were appropriate. As part of the Government’s 2008 theme, which is “Unlocking Resources for Economic Empowerment and Wealth Creation”, I propose to reduce the Value Added Tax standard rate from 17.5 percent to 16 percent. This is a wealth creating measure that will give the consumers K21.6 billion, which the Government will forego in revenues. The measure will take effect on 1st April, 2008.
NON-TAX REVENUES
139. Mr. Speaker, I propose to lift the waiver on visa fees under tour packages. This will level the playing field for all tourists visiting the country. In addition, I propose to increase the visa fees by 100 percent. The Government will raise an estimated amount of K35.4 billion from this measure.
140. Sir, this measure will take effect at midnight, tonight.
141. Mr. Speaker, I propose to revise the fees payable under the Passport and Citizenship Act. For the fees on passports, the current rates will continue to apply until the introduction of the new passports with extra features. This measure will result in a revenue gain of K161.9 billion.
142. Mr. Speaker, I also propose to revise the road user fees payable under the Road Traffic Act. This will bring the fees to appropriate cost recovery levels for providing these services. The measure will result in a revenue gain of K76.3 billion and will come into effect on 1st March 2008.
HOUSEKEEPING MEASURES
143. Mr. Speaker, I propose to amend the Customs and Excise Act, the Value Added Tax Act, and the Income Tax Act so as to update, strengthen, and remove ambiguities in certain sections of tax legislation in order to make tax administration more effective. The measures are revenue neutral.
CHANGES TO THE MINING FISCAL AND REGULATORY REGIME
144. Mr. Speaker, in my 2007 Budget Address to this august House, I proposed new tax measures for the mining sector. I also informed the nation that the Government would engage mining companies, with whom we had signed Development Agreements, as part of the process of introducing the new tax regime for the mining sector.
145. Sir, given the complexity of the mining sector, a team of experts was appointed to study this matter in great detail. The findings of the study show that:
(a) the Development Agreements in their current form are lopsided; and
(b) even if mining companies were to move to the 2007 tax regime, the country would still not get a fair share from its mineral resources.
146. Sir, the Government has, therefore, decided to introduce a new fiscal and regulatory regime in order to bring about an equitable distribution of the mineral wealth between the Government and the mining companies.
147. Mr. Speaker, effective 1st April 2008, the new fiscal regime for the mining sector will include the following:
(a) The corporate tax rate will be 30 percent;
(b) Mineral royalty rate on base metals will be 3 percent of gross value;
(c) Withholding tax on interest, royalties, management fees and payments to affiliates or subcontractors in the mining sector will be at the rate of 15 percent;
(d) Withholding tax on dividend will be at zero percent;
(e) A variable profit tax of up to 15 percent on taxable income, which is above 8 percent of the gross income, will be introduced;
(f) A windfall tax will be introduced to be triggered at different price levels for different base metals. For copper, the windfall tax shall be 25 percent at the copper price of US $2.50 per pound but below US $3.00 per pound, 50 percent at price for the next 50 cents increase in price and 75 percent for price above US $3.50 per pound;
(g) Hedging as a risk management mechanism shall be treated as a separate activity from mining;
(h) Capital allowance, that is a depreciation of capital equipment, shall be reduced from 100 percent to 25 percent per year;
(i) A reference price, which shall be the deemed arms length price, shall be introduced for the purposes of assessing mineral royalties and any transaction for the sale of base metals, gemstones or precious metals between related or associated parties. The reference price shall be the price tenable at the London Metal Exchange, metal Bulletin or any other commodity exchange market recognised by the Commissioner General; and
(j) Capital expenditures on new projects shall be ring fenced and only become deductible when the projects start production.
148. Mr. Speaker, the new mining regulatory framework will be provided for in the Mines and Minerals Act. The framework will also have a modern licensing system based on transparent procedures.
149. Sir, these measures are competitive, reasonable and balanced. The expected additional revenues, in 2008, as a result of these new measures are estimated at US $415 million.
PART V
CONCLUSION
150. Mr. Speaker, over the past few years, the MMD New Deal Government has delivered macroeconomic stability and growth, removed Zambia’s debt burden and articulated a clear long-term economic vision, with concrete plans on how this is to be achieved. Further, in the detailed new measures on the mining sector, the Government has laid a firm foundation for the people of Zambia to fully benefit from the exploitation of their natural resources.
151. Mr. Speaker, by increasing investments in education, health and skills in 2008, we choose to enhance the capabilities and capacities of our people. By increasing and encouraging investments in infrastructure such as roads and communications, we choose to facilitate connectivity and the movement of goods and our people.
152. Mr. Speaker, by developing an information exchange forum under Culture Re-modelling, we take the vital step to freely share the rich backgrounds, values and experiences of role models in our nation and the immense and available opportunities. This is with a strong belief that, the knowledge will assist individuals to re-orient their attitudes, refocus their actions towards results, and establish meaningful relationships, to create wealth and build strong communities.
153. Sir, in this year’s budget, the Government has given fundamental tax concessions which will result in taxpayers retaining some K100 billion in their pockets. In addition, the Citizens’ Empowerment Fund will have over K120 billion. Furthermore, retired public workers will receive a total of K269 billion in terminal benefits. To complement the above, banks and other financial institutions will provide further opportunities for our people to access funds.
154. Mr. Speaker, by reducing the tax burden of individuals, clearing the domestic payments arrears, capitalizing the Empowerment Fund and reducing the Government’s borrowing from the banking system, we choose to financially empower our people with funds to engage in productive pursuits.
155. Mr. Speaker, by these deliberate and calculated measures, the New Deal Government has chosen to create an environment that supports individual initiatives and ingenuity. For the first time in a generation, we stand today, with our destiny, truly in our own hands. Before each one of us, is the opportunity to choose and follow, the path to future prosperity. Each Zambian has the choice, to realise their fullest potential by applying their God-given talents and capabilities.
156. Mr. Speaker, by listening to, and learning from the views, experiences and achievements of others, whether this be, in the important area of constitutional reform, economic excellence, or indeed, how best to marshal our mineral wealth, together, we choose to build a strong and prosperous One Zambia One Nation.
157. Mr. Speaker, I beg to move.
Labels: 2008 BUDGET, MINING CONTRACTS, TAXATION, VAT, WINDFALL TAX
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