Zambia will have to borrow more money after changing mineral taxes

Zambia will have to borrow more money after changing mineral taxes

Zambia will probably cut spending and increase borrowing to make up for a revenue shortfall after scrapping a plan to collect more taxes from mining companies, according to Razia Khan, chief economist for Africa at Standard Chartered Bank Plc.

And Former Finance Minister Ng’andu Magande has described as too huge the projected revenue loss of K2.3 billion arising from changes to the 2015 mining tax regime.

Mr Magande says government should also explain the implication of the revenue loss on the 2015 national budget.

The government announced on Monday it will roll back increases in royalties imposed in January, returning to a previous system based on profit taxes. The change will cost K2.3 billion ($310 million), government spokesman Vincent Mwale said.

“The modification to the mining royalties is good news ultimately,” Khan said in response to e-mailed questions. In the short term, though, government will probably resort to a “combination of some spending cuts as well as external borrowing, given a potentially larger deficit.”

President Edgar Lungu ordered revisions to the tax last month after it was fiercely opposed by the industry. Barrick Gold Corp. said it would halt operations at its Lumwana mine.
The revenue hit comes as Zambia, Africa’s second-biggest copperproducer, seeks to trim its budget deficit to 4.6 percent of economic output this year, from 5.5 percent in 2014. The new mining tax system will come into force on July 1.

Road Plans

Borrowing more to plug the deficit will be costly and government should focus on cutting spending, though that won’t be easy with elections due next year, said Oliver Saasa, chief executive officer at Lusaka-based Premier Consult Ltd. He said savings can be found in road-building plans, and by combining ministries and reducing travel costs for civil servants.
Finance Minister Alexander Chikwanda budgeted 5.6 billion kwachas for road infrastructure this year, or 12 percent of total spending.

Zambia’s fiscal deficit “will certainly be higher than planned,” though its size won’t be clear until parliament approves adjustments to the budget, Praveen Kumar, lead economist for Zambia, Zimbabwe and Malawi at the World Bank, said in an e-mailed response to questions.
The government could remove fuel subsidies, keep a wage freeze in place, sell corn and cut capital spending to contain the deficit, and it may also need to “borrow more than was originally planned,” Kumar said.

Bloomberg news

And Former Finance Minister Ng’andu Magande has described as too huge the projected revenue loss of K2.3 billion arising from changes to the 2015 mining tax regime.

Mr Magande says government should also explain the implication of the revenue loss on the 2015 national budget.

He has further asked the PF government to clearly state which developmental projects will be sacrificed if indeed the 2015 national budget will be reduced.

Mr Magande has told Qfm News by telephone that should government however insists on the planned revenue collection and expenditure outlined in this year’s national budget, it must also come out and state that it will have to borrow more and indicate exactly how much it will borrow.

The former Finance Minister states that government should further tell the nation what

will be the implication of borrowing now in an economy that is already depressed.

And Mr. Magande hopes government has consulted with the mining sector to peg Mineral Royal tax at 9 percent for the both open cast and underground mining.

He says it will be good if the Mines have also agreed to this tax rate because this is the kind of consultation stakeholders in the country want government and the mines to engage in.

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