Matthew Hill Lusaka
ZAMBIA needs money, and mines in Africa’s second-biggest copper producer may be the first place the finance minister looks when he presents his 2015 Budget.
Alexander Chikwanda, who delivers his Budget today in Lusaka, faces pressure to reduce the fiscal deficit from the 5.8 percent of gross domestic product Fitch Ratings predicts for 2014. He also needs to spur growth and job creation.
Failure to rein in the shortfall would make it more difficult in 2016, when an election was due, Yvonne Mhango, a sub-Saharan Africa economist at Renaissance Capital, said.
“The mining sector will be an important part of this year’s Budget, unfortunately to the detriment of the mining companies. Government is trying to mobilise revenue wherever they can.”
Chikwanda was considering scrapping corporate income tax for mines and increasing royalties instead, as this would be simpler to administer, a person with knowledge of the matter said last week. Also, the Zambia Revenue Authority (ZRA) has withheld more than $600 million (R6.7 billion) in VAT refunds from mining firms in a dispute over raw exports.
Mineral royalties could be increased to at least 10 percent and as much as 15 percent, Michael Phiri, a director at KPMG Zambia, said on Wednesday. Chikwanda doubled it to 6 percent in 2011.
Mining houses have been accused repeatedly of tax avoidance, which they deny. Glencore, First Quantum Minerals, Barrick Gold and Vedanta Resources have operations in Zambia, which produces more copper than any African state except the Democratic Republic of Congo.
Mhango said it would be important for the finance minister to address the VAT refunds issue, which had hurt business confidence.
“If there’s uncertainty in the operating environment for investors, you’re going to see the currency come under pressure. The performance of the kwacha has markedly reflected sentiment, more so than almost any other currency in the region.”
Zambia’s kwacha is Africa’s worst performer this year after Ghana’s cedi among 24 African currencies tracked by Bloomberg, having slumped 12 percent against the dollar.
Clarification on the VAT dispute was top priority for the Zambia Chamber of Mines, Jackson Sikamo, the president of the lobby group, said. He declined to comment on whether royalties may rise.
Mhango said the timing of a potential increase in mineral royalties would be “unfortunate”, as “we’re in a softening commodities environment right now”.
Lusaka newspaper the Post reported on Wednesday that Chikwanda would maintain a wage freeze for civil servants next year, citing people it did not identify. It said he would probably announce 46 billion kwacha (R81bn) in spending. That would be a 7.7 percent increase on the 42.7 billion kwacha budgeted for this year.
“We believe the government will look to further consolidate its fiscal position,” Standard & Poor’s analysts said in a report last Friday. – Bloomberg