Zambia is set to introduce new tax reform measures targeted at the country’s mining industry, which aims to increase tax collections among mining companies operating in the country. The Finance Ministry said Zambia’s mining sector, which is one of the biggest in the African region, has been contributing less to Zambia’s coffer compared to other mineral-rich countries which can exact hefty revenues from mining companies.
Finance Minister Alexander Chikwanda said the government will engage the services of local experts that will outline new tax measures to increase revenue collection in the mining industry and to prevent tax leakage. The new measures, some of which have already been implemented in the past months, will tighten the government’s grip on the profits earned by mining companies and prevent any tax fraud.
Reports earlier claimed that Zambia’s mining sector is losing billions of money through the tax avoidance made by some mining companies in Zambia. In the study “Illicit Financial Flows from Developing Countries 2001-2010” compiled by the Washington-based Global Financial Integrity, Sarah Freitas, an economist at GFI, said Zambia has lost roughly US$8.8 billion from 2001 to 2010 in illicit financial flows, about US$4.9 billion of which can be attributed to tax avoidance, such as trade misinvoicing.
Freitas said trade misinvoicing is a type of fraud used by commercial importers and exporters around the world. She said the amount is disturbing considering this is almost half of Zambia’s US$19.2 billion gross domestic product (GDP) in 2011. The per-capita GDP for the same year was pegged at US$1,413 while total revenues collected stood at around US$4.3 billion. The study definied “illicit financial flows” as a type of capital flight that drives the underground economy.
“This means that as criminals and tax evaders avoid law enforcement and move their money overseas, it becomes easier for them to operate in Zambia. The underground economy becomes bigger, whcih makes it even more difficult for Zambia’s government to collect taxes. This in turn drives illicit financial flows further, completing the vicious feedback loop,” said Freitas in her blog discussing some of the details in the GFI study.
Quoting Zambian Deputy Finance Minister Miles Sampa, Freitas said about US$2 billion is lost yearly to tax avoidance by multinational corporations operating in Zambia.
Zambian government’s efforts to crack down on these illegal activities are expected to drive up the country’s share in the mining industry. The government has already started imposing some of these measures. As a result, Zambia’s tax collection in mining increased to 4.4 billion kwacha in 2012, compared to only 3.3 billion kwacha the year before.
Investments in Zambia’s mining sector are reportedly pegged at US$6 billion. One of the growth drivers in Zambia’s mining sector is copper, the production of which is expected to increase to 1.5 million tons within the next five years. In 2012, copper production dropped to 881,000 tons from 2011’s 825,000-ton production.