Zambia won't change tax code

April 30, 2012

Zambia’s vice president, Guy Scott, eased the fears of mining companies operating in that county, at leat for now, when he said there were no plans to change the tax code.

Many companies that operate in Zambia, Africa’s top copper producer, feared an increase in taxes under a new government elected last year as well as the surge of resource nationalism that has spread across Africa.

The country does plan to tighten its grip on the government’s share of profits made at the mines but plans to do so by boosting tax revenue and ensuring a more level playing field for Chinese and other investors, Reuters reported.

“We are very happy with the formula at the moment. We are not arguing about the taxation formula ... That’s not where the concern is. The concern is compliance,” Scott said, speaking at an event hosted by Thomson Reuters.

“There are all these countries that are known as offshore banking or financial services centers. They get their money from somewhere, and we suspect some of it may be coming from Zambia,” said Scott, one of the highest-ranking white officials in sub-Saharan Africa.

Sticking to the current tax regime was a “firm promise,” he said. “We have backed off a windfall tax which at one stage was brought in ... We have a higher royalty, and a progressive profits tax and the interest is not to change the formula but ... to enforce compliance,” he said.

The new Zambian government is trying to juggle the competing priorities of unions demanding better pay for mineworkers with demands for more stable conditions from mining firms.

Scott said the government would look at under-reporting and possible transfer mispricing by mining companies, but said there was an issue with raising tax-collecting capacity. Ensuring they collect their share of mining profits is a huge concern for resource-rich African countries like Zambia.
Many countries and pressure groups fear abuse of transfer pricing rules — governing how companies sell goods between subsidiaries — means they are losing billions of dollars to tax havens.

Transfer mispricing happens when a company’s unit in Zambia, for example, sells goods to a second unit at a cut-down price to ensure it records most profits in a low-tax jurisdiction.

Scott said Chinese miners, with whom relations have not always been smooth, would be treated like anyone else but would no longer get the favored treatment he said they had enjoyed under the previous administration.

President Michael Sata has toned down his past accusations that Chinese companies, which have sunk $2 billion into Zambia to secure a share of its mineral wealth, had created slave labor conditions in Zambia with scant regard for safety.

“They have great interest in our natural resources ... We are not frightened they are going to turn around and go. They are obviously not. So they need to be treated on an equal basis,” Scott said.

Scott said he expected the Zambian economy to grow by eight percent this year, after 6.6 percent growth in 2011, and inflation to stay around its current level of 6.5 percent.


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