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Zambia: Progressive Mineral Taxation Regime Can help Limit the Fiscal Reformation

The Centre for Trade Policy and Development (CTPD) is calling for a progressive mining fiscal regime that captures a substantial amount of revenue in high mineral prices and provides fiscal space for mining companies in low mineral prices.

CTPD has observed that progressive fiscal regimes can help limit unilateral alteration of fiscal terms by the government.

The Centre notes that although the Zambian government has made an immense stride in making some fiscal instruments progressive such as the implementation of the sliding scale mineral royalty, it is important to be cognizant of the fact that this is not a single tax instrument that influences the progressivity of a taxation regime but the lump sum of all taxes. A mineral taxation regime can have a fiscal instrument that is progressive but still shows that it is regressive when taxes are analysed as a lump sum.

According to the Fraser Institute survey, Zambia has slipped into the world’s bottom 10 countries of attracting mining investment. This slip has been attributed to a negative policy perception by investors which has emanated mainly from frequent revisions in mining tax policy.

The frequent revisions in mining tax policy have reduced due to the fact that the country is not getting the maximum benefit from its resources in times of high mineral prices. This being so, there is a need to make the taxation regime more progressive. Doing so will help reduce the public’s perception of low gain from mining. This is because the progressive tax regime will capture a substantial amount of revenue in high mineral prices and provide fiscal relief to mining companies in low mineral prices.

Further, CTPD notes that in as much as the government should encourage progressivity in the mining fiscal regime it is important to provide the right balance with the administrative capacity of Zambia Revenue Authority.

Additionally, it is also important to note that profit-based tax instruments by their nature are known to induce progressivity. However, this is contradictory because profit-based tax instruments are difficult to administer than revenue-based tax instruments. Under profit based tax instruments both revenue and costs are manipulated by the investor to reduce the tax incidence.

CTPD wishes to note that the concept of progressivity in mining taxation should not be limited to copper. There is need to apply progressive tax instruments to other minerals such as cobalt, gold and nickel.

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