ZRA against windfall tax

Zambia’s revenue agency is opposed to the reintroduction of the windfall tax regime in the mines despite its anticipated revenue contribution to the country’s treasury as it will stifle the growth of the industry in the medium and long term.

Mr Wisdom Nhekairo commissioner general of Zambia Revenue Authority said when he appeared before the Parliamentary Committee on Estimates that the reintroduction of the regime was harmful than good to the industry.

Mr Nhekairo said that objectively it is not good to impose taxes which risk suffocating the mining industry. Thus the reintroduction of the windfall tax on sales has the potential to stifle the growth of Zambia’s mining sector. Increasing taxes when other countries were not changing their tax systems would make Zambia uncompetitive in the area. Removal of windfall tax on sales would not necessarily lead to loss of Government revenue as the variable tax still captured any windfall gain that could arise in the mining sector.

He said that a fundamental economic argument is that low taxation is one of the key determinants for attracting foreign investment and, as such, relatively higher taxes especially in the form of windfall taxes on sales may be a major disincentive to long term investment. To inspire investment, Zambia needed a policy that was certain and stable with reduced risks to long-term investment decisions and that shifting policies within a short period of time may not inspire continued investments. The momentum with the current investment inflows into the mining sector need to be maintained as it has desirable forward and backward linkages such as employment creation and a guaranteed revenue stream.

The windfall taxation of sales posed a threat on the profit realization of some mines and could lead them to spending less on workers in terms of salaries through lessened Pay as You Earn to the Government. Moreover, Mr Nhekairo argued variable profit taxation by it being based on profit taxation is administratively consistent with the current practices within ZRA.

He submitted that this notion of taxing super profits is currently applied in the financial sector and will be applied to the telecommunications sector as announced in the 2011 Budget. Administratively, mining taxation was an immense challenge to even the most developed tax authorities. ZRA had since established a dedicated mining tax unit to ensure efficient and effective taxation of the mining sector.

Mr Nhekairo said that there was need for continued support, both financially and materially, to enable the tax authority to keep pace with the complexities associated with mining taxation such as tax avoidance by mining firms. The reintroduction of the mining taxation in Zambia has been a debatable matter in Zambia with several key players including two former finance ministers.

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