Kwacha depreciating due to PF’s poor handling of mines

Mineral exports remain the principal contributor to foreign exchange earnings on the Zambian current account with Kansanshi mine contributing US$70 million in taxes per month last year. Mining enterprises without doubt are significant employers directly and indirectly. They have scaled down on mining and cancelled contracts following the introduction of the new mining tax regime and the prices of copper that have been declining the last 7 months. The worst affected are those involved in open pit mining, leaching and other means of the processing imported copper concentrates. With independent advise that the decision will bring down his government Lungu instructed his godfather Alexander Chikwanda the minister of finance to negotiate with the mines. Thw following day informed Chikwanda informed the nation that the current mining tax regime was final. Lungu said nothing further.

Although all mining companies submitted their tax returns on Friday 13th February 2015, the returns received show that the contribution by Kansanshi Plc and Chibuluma mines is lower than their contribution in 2014. As advised by Commerce Minister Mwanakatwe (Chikwanda told her to shut up) and supported provisions in the Income Tax Act and Mines and Mineral Act, the rest of the mines have asked that they defer their payment until they are in a profit making positions. Only Chibuluma and Luanshya Coppers mines paid the actual cash a total of US$9 million. The US$9.0 million was sold in the market on 17th February 2015 and that is how the Kwacha had gained by 5 ngwee.

Our readers have been asking us from the story we posted yesterday how possible it is for the Kansanshi Plc and Chibuluma mines to pay lower taxes under the new regime. As they say, the devil is in the details. Chikwanda, who is a known broker for some mines sneaked in a clause in his budget that those involved in underground mining, theier mineral royalty will be 10 percent. Mind you mining companies used to pay 6 percent mineral royalty and 30 percent in profit tax. The 4 percent increase on mineral royalty for those involved in underground mining is lower than the 30 percent they used to pay on their profits. Chikwanda and Msiska can cheat Zambians but let them own up and tell Lungu the truth about Kansanshi and Chibuluma.

The arrogance by Chikwanda has started biting. The Zambian economy is in intensive unit as clearly illustrated by the free falling Kwacha. With the contribution from the mines fast drying, sources in Bank of Zambia have informed us that the country is struggling to raise US$100 million per month from the market to import fuel, US$90 million for debt service and the private sector and the rest of the economy US$300 million bringing the total over US$490 million.

As a temporal stop gap measure the clueless PF government has decided to embark on a road show to borrow US$2.0 billion Eurobond to defend the ailing Kwacha which will be enough to stabilize the Kwacha for 4 months and use it to pay debt service which is due. Berlin Msiska has being instructed to withhold refunds to the mines and the Ministry of Finance has decided not to pay contractors whose dues have been outstanding for 9 months so that they do not go in the market to buy dollars. The Kwacha will eventually become worthless and those who can, store your money in dollars, Pounds and Euros in your houses. Those taxpayers whose VAT was withdrawn the law allows you to ask ZRA to garnishee it to pay your other taxes.

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