By Bennie Mundando
ZAMBIA must exploit high copper prices through increase the production base of mining companies by giving them at least 25 percent capital allowances, Centre for Trade Policy and Development (CTPD) has said.
The Centre notes that the mining remains the backbone of Zambia’s economy accounting for 14% of Gross Domestic Product (GDP), over 14 percent of domestic revenue generation, and over 70 percent of foreign exchange earnings.
It notes that the sector also contributes substantially to employment levels and that these benefits are proliferated or subdued depending on the status of mineral commodity prices.
CTPD Senior Researcher (Extractives) Webby Banda today said in high copper prices, the country tends to economically benefit more through increased foreign exchange earnings and high domestic revenue generation through fiscal instruments such as the sliding scale copper mineral royalty.
Mr. Banda however said there is need to appreciate that the opposite is also true.
“The price of copper has increased substantially, from $5730.97 per tonne in February, 2020 to $9,286.00 per tonne in February, 2021, the highest since 2013. The immediate question that needs to be answered is how the country will benefit from this state of affairs both in the short and long term.
“In addressing short term effects only, although not the best approach of managing affairs, the Government can increase the production base of mining companies by giving them at least 25% capital allowances.
“(it can also) reintroduce the deductibility of mineral royalty for the purpose of computing Corporate Income Tax (CIT) payable. However, this must be limited to 50% of the mineral royalty payable. This will provide a win-win situation between the government and mining companies. This will have the duo effect of mining companies having cash flow relief to continue in business and the government will have a considerable amount of mining revenue to service the country’s debt and provide social services to the citizenry,” Mr. Banda said.
He said focusing on the long-term measures, Government must incentivize exploration activities.
“This is because these activities are paramount to the discovery of new deposits and the opening up of new mines. Failure to do so will result in the stifling of investments in exploration. This means new deposits will never be discovered and new mines will never be open. This will have a primary ripple effect of reduced tax revenue generation and employment levels.
“Secondly, the Government needs to design policy that enhances value addition in the copper mining sector by incentivizing activities that attain forward vertical integration e.g. a lower mineral royalty rate can be given to mining companies up the mineral value chain,” he said.
“In going forward, there is a need to comprehensively evaluate mining policy in Zambia and curtail the reactive approach of redesigning the fiscal regime to respond only in the short term. Additionally, there is a need to extend robust fiscal measures to other sub-mineral sectors other than the copper mining sector. Doing so will ensure that the country garners the maximum economic benefit from mining,” he said.