By BUUMBA CHIMBULU
ZAMBIA’S copper production is approximately 300 000 tonnes lower than where it should have been due to policy inconsistency in the mining sector, Zambia Chamber of Mines (ZCM) Chief Executive Officer, Sokwani Chilembo, has said.
Mr Chilembo said many investments in the mining industry had been halted due to policy inconsistent which had continued over the years.
He warned that Zambia was therefore on the verge of dropping out of the global top ten copper producing countries due to the anticipated drop in copper production.
Government has in the 2020 budget proposed to impose a Value Added Tax (VAT) consumables claim limitations, effect a 10 percent duty and capital allowance reduction to 20 per cent from 25 per cent.
But Mr Chilembo said the downward trends in production were as a direct result of excessive tax regimes in recent years and would accelerate going forward.
He said this during the submission on the 2020 Budget to the expanded Budget Committee of Parliament chaired by Mbala Member of Parliament Mwalimu Simfukwe in Lusaka on Tuesday.
“By our calculations, Zambia is now receiving less tax from the mining industry – far less than the government must have anticipated, and far less than it could do with a different approach; one that is single-mindedly focused upon growing the industry, and realising its full potential,” Mr Chilembo said.
Mr Chilembo said the overall effect of these measures was to discourage investment and re-investment by increasing the cost of capital expenditure.
The industry, he said, had been struggling to maintain asset quality from 2015 when mining tax and cost escalations had reduced its ability to generate returns that made the cost of capital affordable.
“The outcome under this approach of continuing with the detrimentally high tax rate is simply a continued downward trend that will cost the treasury when revenue is measured in hard currency,” Mr Chilembo said.
He said costly investment was required to ensure levels of production remained constant.
“If this investment is not likely to be profitable, due to the excessive tax costs, the investment will not be approved by shareholders. This has been, and continues to be, the case for the Zambian mines in recent years.
“Consistent increases in tax costs at a time when mining costs are increasing due to industry maturity, means investment is not worthwhile and will not be made as required,” Mr Chilembo said.
He said as a result, production levels would steadily decline saying this trend was already being seen in the results from the first half of 2019.