CHAMBER OF MINES' PROPOSALS TOWARDS 2015 NATIONAL BUDGET

TODAY, I have decided to feature an abridged version of the Chamber of Mines of Zambia (CMZ) submission on the mining sector budget proposals for the 2015 national budget and 2015-2017 Medium Term Expenditure Framework (MTEF).

The document reads:

Following the call by the Ministry of Finance to stakeholders to make submissions on tax and non-tax revenue measures to be considered by Government as it prepares the 2015 National Budget and 2015-2017 Medium Term Expenditure Framework, the CMZ ... we would like to put forward the proposals below for inclusion in the overall submissions.

VALUE ADDED TAX (VAT) RULE 18

Measure: We propose amendments to Rule 18, specifically amending sub-section (ii), to read as follows:

"Rule 18 of the principal Rules is amended by the deletion of sub-rule (1) and the substitution therefor of the following:

 (1)     Unless the Commissioner General shall otherwise allow, a taxable supplier claiming that a supply is zero-rated under the Second  Schedule to the Act on the grounds that the supply is an exportation
of goods, shall produce to an authorised officer-

 i.      Copies of export documents for the goods, bearing a certificate of shipment provided by the Authority or Import documentation into the next country of passage or destination provided by the customs authority of that country.

 ii.     Tax invoices for the goods exported;

 iii.    Proof of payment, made by the customer, for the goods;

 iv.     Documentary evidence, proving that payment for the goods has been
made into the exporter's bank account in Zambia; and

 v.      Such other documentary evidence as the authorised officer may
reasonably require."

a)      Reason: Current VAT practice as guided by Rule 18(1) VAT (General) Rules, 1997, allows an export of goods from Zambia by or on behalf of a taxable supplier to be zero-rated, subject to provision of evidence of exportation as the commissioner general may require.

In its current format, Rule 18 prescribes, among others, the following documentary evidence to support exports:

"ii)    certified copies of customs import documents at the country of destination, bearing a certificate of importation into the country of destination by the customs authority for that country;"

Finance Minister Alexander Chikwanda is expected to present the 2015 National Budget to Parliament on Friday next week.

The mining sector has had no problems producing documentation all the way up to the border or point of exit as these documents are within our control.

The mines, however, have had difficulties with fulfilling sub-section (ii) above as they sell their products to commodity traders, who have their own commercial arrangements with various customers all over the world.

In addition to the fact that they cannot trace documentation in the final country of destination for the goods as they have no access to the final customers, it is further implausible that the ZRA would demand documentation beyond what its own officers have verified as exported as indicated above, and would instead want to rely on third party documentation from other tax jurisdictions.

The failure to provide documentation required in (ii) above has resulted in the ZRA withholding huge sums of their VAT refunds, which has resulted into various operational problems with severe impact on cash flows impacting very negatively on their ability to fund critical expansion projects as well as normal operations.

Specifically, the withholding of this VAT has resulted into inability to fund critical expansion projects, corporate social responsibility projects as well as maintain cash flow to support normal operations.

CAPITAL ALLOWANCES

Measure: The capital allowances on mining plant, machinery and equipment should be reverted to 100 per cent per annum for the cost to be fully claimable within one year.

Reason: Under Section 33 of the Income Tax Act currently, capital allowances are claimable at the rate of 25 per cent on cost and upon commissioning of an asset, meaning that this cost can only be claimed
in full after four years.

In the mining industry, it is not uncommon for expansion projects to take for instance three to four years before completion and commissioning.

During this period of construction the companies will be spending money without getting any tax relief on what they spend.

Even upon commissioning of an asset, it will still take another four years for them to fully claim the related capital allowances.

PREMIUMS DISCOUNTS

Measure: The Reference Price for sale of metal products between related parties should allow adjustments for premiums and discounts that are made based on the quality of the metal products at
finalisation.

Reason: The Income Tax Act under Section 97A currently requires an adjustment of all sales between related parties to the LME price, even when the price actually charged is justified based on international best practice.

This has resulted in finalization adjustments for premiums and discounts not being taken into account, despite this being a commercial reality.

 The Act should therefore be amended to permit use of alternative prices where these are commercially or otherwise justified.

 EXPORT DUTY ON CONCENTRATES

Measure: The government should consider revoking the tax on concentrates exports.

Reason:  The revoking of Statutory Instrument number 89 that allowed concentrate exports to be duty exempt need to be re-introduced as a good number of mines had large stocks of concentrates which for some technical reasons could not be processed locally.

These include high insol materials that may not be able to be smelted locally and Government needed to understand that the industry only exported the concentrates it could not technically and/or economically treat.

This would also help tackle the perception that companies were smuggling other metals within the concentrates.

VAT ON IMPORT OF COBALT CONCENTRATES

 Measure: The Government should reintroduce permanent VAT deferment on cobalt concentrate imported.

 Reason: Due to shortage of higher grade cobalt concentrate in Zambia, Zambian processing/tolling plants have to import most raw materials from the Democratic Republic of Congo to maintain cobalt production in Zambia.

 Currently Zambia produces approximately seven to eight per cent of the world's cobalt metal. Over 90 per cent of this is produced from imported cobalt concentrate.

 For comments call: 260 0955 431442, 0977 246099, 0964 742506 or email:jmuyanwa@gmail.com.

SUBSIDY REMOVAL: 2014 HOTTEST MOVE

THE removal of subsidies on fuel is debatably one of the most  controversial policy measures which the current government has come  with this year.

It is a single move which has remained hot to date, more than six  months down the lane.

 The measure which was accompanied with the reduction in the Farmers  Input Support Programme (FISP) will remain so for a long time to come  because of its impact on lives of people.

Like I stated in this forum on May 8 2013, the move could have been  better handled than it was.

To start with any subsidy on the price of a commodity reflects what  the government wants to achieve at that particular time and,  therefore, it has several opportunity costs.

I indicated then and still indicate that due to the scarcity of funds,  the government will always have to make choices on what to spend the  limited resources on and what to forego.

Wisely or not the subsidy on fuel prices was introduced to mitigate  the effects of the high prices of the commodity in the country.

It followed the realisation of the cardinal role the commodity plays  as the lubricant of the entire economy and therefore the argument  whether it was the right thing to do or not will remain relative and a  matter of policy objective.

In my view the increase in the prices of fuel is among a few changes  which affect the national economy and all citizens including those in  the countryside who may not be able to board any form of motor vehicle  at all.

They are affected through the ripple effects which are quite drastic  and effective.

The same goes with the adjustment in the prices of mealie meal which  ironically affects even the self-catering rural dwellers through the  immediate effects.

The subsidy on fuel is distinctive in that it can be on consumption  and on production at the same time depending on what the subsidised  fuel is used for.

Therefore, whether to continue with the subsidy is neither wrong nor  right, but depends on what the Government wants to achieve at a given  time.

In short, the government was neither wrong nor right in removing it.

I stated that from the detailed justification which came through then  Mines, Energy and Water Development minister Yamfwa Mukanga when  announcing the measure and the subsequent one by President Michael  Sata it was clear that the government meant well.


What the government did not do is to prepare the minds of the people.

The responsible ministry should have psyched the people by offering  prior information on how the government had been performing on the  subsidy and some of the challenges.

That did not come from the ministry or ministries responsible until  President Sata told the nation on May 2 that in 2012 alone, the  treasury redirected resources amounting to K754 million from
implementation of other government programmes to the fuel subsidy.

According to State House for the 2013 budget, the Government already  paid K571.5 million in fuel subsidies.

It was estimated that more than K1.1 billion would have been paid in  2013 as subsidies if no adjustment were made to the price build up  and/or the pump price.

Our government had an opportunity to ensure the data resonated well  with the status quo, during the unveiling of the 2014 National Budget  in October this year.

One expected Finance minister Alexander Chikwanda to inform the nation  that so much money was saved following the removal of subsidies on  fuel and the reduction on FISP.

He should have gone a step further - like he did last year on the  Eurobond funds – by telling the nation the areas in which the saved  money would be spent on.

That could have gone miles in helping to bring the issue to rest once  and for all.

On the other hand, however, the removal of subsidy on maize and  fertiliser - justifiably or not - helped to revive the argument on the  need to diversify consumption from nshima to other foodstuffs.

Like I asked then, were Zambians created to survive on only nshima  made from maize meal as staple food? What of other crops like rice,  sweet potatoes, cassava, Irish potatoes, macaroni, finger millet and  sorghum?

The overdependence on maize and its products has amplified the  position of the cereal crop to a political produce.

Yes, the continued dependence on nshima made from maize is not helping  us at both household and national level.

I would say the development provides all of us with an opportunity to  rethink on our feeding choices and come up with alternatives to maize.

I feel even at the peak of the subsidy on its cultivation, maize has  been grown by the local small scale farmers at higher cost given the  low productivity.

Reducing or eradicating the overdependence syndrome on maize would  require the total change of the mindset by the citizenry, including  the farming community.

For that to occur, the Government should play an active role in  marketing and popularising the consumption of other foodstuffs,  including nshima made from other crops.

For comments/other contribution call: 0955 431442, 0977 246099,
0964742506 or e-mail: jmuyanwa@gmail.com or
Ends…