The Centre for Trade Policy and Development (CTPD) has called on the Zambian government to take decisive steps in the upcoming 2024 national budget to rejuvenate the country’s struggling mining sector. CTPD has expressed concern over the sluggish response of the mining industry to the tax incentives introduced in the 2022 and 2023 national budgets, resulting in reduced productivity and lower tax revenue collection.
The mining sector, a critical pillar of Zambia’s economy, witnessed a significant 24.37 percent decline in copper output during the first quarter of 2023, producing 143,640 metric tonnes compared to 189,953 metric tonnes in the same period of 2022. This drop is strikingly below the average quarterly production recorded between 2010 and 2022, marking a 25.9 percent decrease. This concerning decline comes amid the government’s ambitious target of achieving an annual copper production of 3 million metric tonnes within the next nine years.
Although the government introduced favorable tax adjustments for the mining sector in the 2022 and 2023 budgets, such as reducing the Company Income Tax (CIT) from 35 percent to 30 percent and permitting mineral royalty deductions for CIT calculations, the sector’s performance has not met expectations. Continued low production levels and unfulfilled mining tax revenue have been persistent issues.
Preliminary data from the Ministry of Finance and National Development reveals a deficit in income tax collection for the first half of 2023, amounting to K22.8 billion—a 12.1 percent shortfall from the K26.1 billion target. Within this, company tax collections, particularly within the mining sector, were K8.2 billion, marking a 28.6 percent deficit from the K11.6 billion target. Mining tax collections were K3.4 billion, significantly below the K7.1 billion target. Additionally, Value Added Tax (VAT) refunds within the sector continue to be substantial.
Against this backdrop, CTPD emphasizes the need for comprehensive measures that extend beyond tax adjustments to revitalize the mining sector. Recognizing the sector’s potential requires a diversified approach encompassing investment, local capacity building, and strategic planning.
CTPD has outlined several strategic measures in preparation for the 2024 national budget:
- Boost Funding for the Geological Survey Department (GSD): Adequate funding for the GSD is essential for obtaining accurate geological information. This information supports informed decision-making in the mining sector and promotes long-term investment.
- Address VAT Refund Claims: The government should scrutinize the drivers of VAT refund claims in the mining sector to ensure their authenticity. Enhanced compliance checks are crucial to combating fraudulent claims.
- Foster Local Value Addition: Encouraging domestic processing and refining of raw materials within the mining sector is vital. Collaboration with stakeholders can yield strategies that create employment opportunities, enhance sector resilience, and add value to resources.
- Invest in Capacity Building and Skills Development: Allocating funds for training and skills development, especially for artisanal and small-scale miners, will lead to a skilled workforce, improved efficiency, safety standards, productivity, and increased government tax revenue.
CTPD’s recommendations highlight the need for a multi-faceted approach to propel Zambia’s mining sector back on a growth trajectory. As the country anticipates the 2024 national budget, the mining industry’s recovery remains a priority for sustainable economic progress.