Zambia scraps sales tax plan in concession to miners

Zambia will not replace its value-added tax (VAT) with a non-refundable sales tax as previously planned, Finance Minister Bwalya Ng’andu (pictured) said on Friday.

Zambia, Africa’s second-largest copper producer, is grappling with high debt levels and the effects of a severe regional drought which has depressed economic growth.

The sales tax plan had been a major bone of contention between the government and the mining industry, a critical sector.

“Government has decided to maintain the Value Added Tax, but address the compliance and administrative challenges,” Ng’andu said in a budget speech.

Ng’andu has sought to mend fences with the mining industry since being appointed in July. Relations had soured over proposed tax changes and a dispute between the government and Vedanta Resources over its Konkola Copper Mines unit.

Sokwani Chilembo, chief executive of Zambia’s Chamber of Mines, told Reuters that the mining industry welcomed the scrapping of the sales tax plan but was dismayed by other measures contained in the budget.

Ng’andu said Zambia would reduce the capital allowance for capital expenditure to 20% from 25 per cent and limit VAT claims on electricity to 80 per cent from 100 per cent, among measures affecting miners.

“These new measures will make rehabilitation and maintenance more expensive at a time when we are already struggling to keep our plants in good shape,” Chilembo said. Economist Chibamba Kanyama said continuing with VAT would provide a degree of certainty for business.

He called the speech a “stabilisation budget,” reflecting government’s desire not to take austerity measures too far before a general election in 2021.

Ng’andu said he would limit Zambia’s fiscal deficit to 5.5 per cent of gross domestic product in 2020 from 6.5 per cent this year.